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The importance of Governance

Why it matters and why you should care

Author Diego Xirinachs / @dxiri

Unstoppable Organizations!

That is Aragon's premise, but how on earth can you build such a thing?

You need a set of rules that everyone must follow in order to achieve any given organization goals. The must is the hard part, people do things for different reasons, and interests not always align, so you need a system that can incentivize good behavior while punishing bad behavior.

Sounds familiar? This is what governments all around the world do. If you behave like a good citizen (by paying taxes, for example) you are "rewarded" by allowing you to get a job, get a government issued ID/drivers license, etc.

If you don't behave, you go to jail, get fined and/or barred from certain communities, for example, if you are a doctor and kill someone because of negligence, you get expelled from the medic community and forbidden to exercise your profession.

Enter governance.

To start, it may be good to define what governance is and then we can drill down into why it is important.

"Governance is the process of establishing and maintaining the legitimacy of decision-making processes"

If you don't have any governance, you lack direction or common goals, causing confusion and disorder.

Hence, governance is an important topic that touches everyone's lives in some way or another. With our current system, a government is established, ground rules are set in the form of a constitution, and everyone in that same jurisdiction agrees to follow those ground rules.

The Internet has enabled collaboration from individuals residing in different countries and jurisdictions. These jurisdictions are not always compatible with each other, which leads to all sorts of issues that affect productivity between them. For example, someone in Venezuela can't easily send a payment to another party in the US without incurring extremely expensive foreign exchange fees. Or think about someone in Cuba trying to open a business with a Costa Rican partner, each party would need to open their own subsidiary in each country, and in the case of Cuba, the best you can hope for is a 50-50 joint venture with the government [1]: taxes and laws are so different that having a common company is impossible.

So, to build unstoppable organizations, you need to start by laying some ground rules that everyone participating agrees with. More importantly, you need to be able to adapt your governance systems to a constantly changing environment, and do it in a way transparent enough so that all participants can clearly see why any decision was made.

In a Medium article by Fred Ehrsam [2] he says that governance is the most vital problem in the space, and fundamental problems can be solved by creating the right incentives for people with adequate skills to solve the problem. A project is just as good as the people behind it. If you have a clear governance process, you can pull talent from wherever it resides, and avoid painful arguments that leave nothing more than people screaming at each other over a mailing list.

There are multiple projects besides Aragon trying to define new ways of Governance that can endure. Decred, for example, aims to solve the problems that Bitcoin has in its governance by implementing a consensus voting model that empowers stakeholders and allows for the seamless transition from one set of rules to another. This makes the project move at a faster pace than Bitcoin since all stakeholders incentives are aligned with the development of the project itself. Governance issues have plagued Bitcoin with multiple forks, community splits, and inability to move forward on certain Bitcoin Improvement Proposals.

Aragon takes governance one step further, by not just allowing voting, but providing a platform to implement whole digital jurisdictions. The value of this can't be underestimated, a digital jurisdiction enables all participants to know the rules and automatically (via smart contracts) incentivizes good behavior by rewarding it, while punishing lechers or people trying to harm the organization. It also completely erases the problem with incompatible jurisdictions, since you are now playing by the rules set by a group of people that have similar goals, and we all know 2 heads (or a million) are better than 1!

[1] [2]