May 29, 2018

The Radical Future of Corporate Governance and Blockchain

Blockchain technology and cryptocurrency, specifically Bitcoin, created a tremor through the financial sphere in 2015. Blockchain’s innovative technology is offering users a new way to create, exchange, and track ownership of assets in a fully secure platform. Bitcoin itself is quite revolutionary, which is essentially a universal currency whose value has skyrocketed in recent years. Bitcoin value has now reached upwards of $300 billion. However, this new, uncharted, and unpredictable monetary landscape has a divided audience. Is Bitcoin the future of money or just an outright scam? One answer that emerges is the increased interest in blockchain, the technology on which Bitcoin was founded. Forbes reports that “banks including Barclays, Citi Bank, Deutsche Bank and BNP Paribas have said they are investigating ways they might be able to work with Bitcoin” and blockchain technologies. More importantly, the impact blockchain technology is having on corporate governance practices including transparency and voting is revolutionary.

block-chainBlockchains can be described as a decentralized ledger system that stores information and allows for secure transactions without the need of a third party, such as a bank. The information is stored on computers and monitored by volunteers all over the globe which, as Sean Williams explains ensures “that no single entity, including businesses or cybercriminals, can gain control over the network.” The decentralized nature of blockchain combined with security, speed, and transparency make this technology highly desirable to those participating in corporate governance.

Blockchains Adapted for Corporate Governance

Corporate governance is finding blockchains highly enticing for its transparent nature. When combined with ‘smart contracts’ that help exchange money, property, and shares in a transparent conflict-free way, blockchains have become quite revolutionary for corporate governance. The Conference Board explains that corporations who adopt blockchains will no longer need to manually update stock ledgers and notify shareholders every time a share or stock is transferred or issued. The Conference Board points out that corporations can create an environment in which “a distributed stock ledger, accessible only to parties to which the corporation has given permissioned access, which automatically updates in a verifiable fashion whenever a change in the ownership of an asset takes place.” This technology is not strictly limited to stocks or shares but can be used for contracts and transactions of any kind. Harvard Law states, “blockchains could provide unprecedented transparency to allow investors to identify the ownership positions of debt and equity investors and overcome corruption on the part of regulators.” One of the most powerful features of a blockchain is that they allow stakeholders to access current and accurate information at any time.

shareholder-governanceBoards can benefit from blockchains for many different reasons. The Conference Board continues, “shareholders of large corporations must rely on the board for information, with often little access to corporate records and no way of verifying the validity and truth of information except trusting the directors.” But with blockchains, administrators can give permissioned access to real-time records and increase verified secure communication. However, in the Penn State Journal of Law & International Affairs, Fiammetta S. Piazza warns, “this heightened transparency may actually come at the detriment of shareholders, especially in the case of inexperienced investors that may not be familiar with typical corporate strategies and might misinterpret perfectly innocent board decisions.”

Arguably, the most attractive feature of blockchains to corporate governance is the ability for secure and accurate proxy voting. Proxy voting is a complicated process for corporations whose shareholders and board members are often absent from this process. This can result in flaws, inexact voter lists, incomplete distribution of ballots, and problematic vote tabulation. Blockchains are innovating this cumbersome and unsecured process due to its reliability and transparency. Fiammetta S. Piazza thoroughly explains proxy voting via blockchain: each voter is given voter tokens (bitcoins) that represent their voting power. Votes are cast on the blockchain and recorded on the secure ledger. Voters not only participate in the corporate voting process but observe the voting process as it occurs. Piazza continues, “voting via blockchain would effectively solve ambiguities about election outcomes and thus reduce opportunities to manipulate such results and would, therefore, be an advisable corporate governance tool.” Piazza also feels that blockchain proxy voting is not only innovative but “could be an area in which the blockchain could be tested for potential further implementation in governance.”

The Future of Blockchain Technology in Corporate Governance

Bitcoin and blockchain are rapidly growing and evolving. An article published by Harvard Law states, “these innovations have the potential to change corporate governance as much as any event since the 1933 and 1934 securities acts in the United States.” The imminent impact this cutting-edge technology has on corporate governance is unprecedented. Several blockchain patents are awarded in the U.S. every day, including a patent filed by Gemini owners the Winklevoss twins. Earlier this month, however, Cryptoslate reported that global fintech leader, Broadridge Financial Solutions, was awarded a blockchain patent that will be “used to streamline corporate governance and shareholder relations.” This patent will aim to use blockchains to enhance proxy voting and repurchase agreements. Cryptoslate concludes, “while the patent may focus on an extremely specific element of corporate governance, the fact that organizations such as Broadridge…are seeking to adopt blockchain technology demonstrates that distributed ledger tech will play a core role in the financial infrastructure of the future.” Furthermore, as of May 18, 2018, Broadridge Financial Solutions completed the first practical use of blockchains for investor proxy voting at their annual general meeting.

It is arguable Bitcoin and blockchains are pioneering a new frontier in financial technology. Bitcoin’s future, which is categorically unstable and under-regulated is a risky venture yet to be determined. However, a sound investment can be made in Bitcoin’s foundational technology, blockchain, which is undoubtedly making its mark on corporate governance.


Tag(s): Governance

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