Last week I spoke about blockchain-based corporate voting (and other topics) at the “Blockchain Symposium” held by Gowlings WLG in Toronto. This blog post expands on that discussion and explains why I think corporate voting via blockchain will be reality within the next few years.
Corporate voting is just one aspect of the large constellation of service companies that handles ownership, registration, transfer, settlement, clearing, and other functions of the public securities markets. What's going on in the world of securities management/investor communications?
Every major company that handles shares on behalf of other people is interested in blockchain. Fully canvassing their efforts would be a 100 page report so I'll suggest to readers that they Google their favourite securities management/investor communications company + "blockchain". Most of them have made significant (and highly publicized) investments as they try to quickly move on the new technology. I've highlighted a few examples below.
Major Corporate Interest
1. A PowerPoint presentation prepared jointly by Computershare and SETL provides a great overview of the market and one way for blockchain-based systems to replace functionality: https://www.computershare.com/corporate/Documents/ID2016/05_CPU%20Blockchain%20Overview.pdf. Computershare manages shares on behalf of approximately 2/3 of the companies listed on the Toronto stock exchange.
2. DTCC, which handles the majority of US public securities transfers, has also been very active in this space. DTCC invested several million dollars into a blockchain business called Digital Asset Holdings at the beginning of this year. A few other DTCC initiatives: http://www.dtcc.com/news/2016/january/25/blockchain.
3. Corporate voting/proxy management company Broadridge spent $95 million USD on a blockchain acquisition in September: http://www.broadridge.com/news-events/press-releases/Broadridge-Acquires-Technology-to-Accelerate-Proxy-Blockchain-Roadmap.html. There are also many startups developing solutions for this, e.g. followmyvote.com.
4. NASDAQ announced in February that they're experimenting in Estonia with proxy voting via a blockchain-based system: http://ir.nasdaq.com/releasedetail.cfm?releaseid=954654.
The reason for this interest is that blockchain systems offer the ability to have an up-to-date database that can be analysed by many players without having the players being able to modify it. This is particularly valuable for corporate voting.
Corporations need to manage the votes of thousands or millions of people, distributed across a wide area. Corporations are also required to maintain a ledger that keeps track of who all of their shareholders are, at any given time. Blockchain helps to allay concerns about votes being properly recorded and, if done properly, reduces the administrative costs. There are significant parallels to the problem that Bitcoin solved and an opportunity to reduce the transactional costs of corporate voting (i.e. reduce expenses or increase profit/marketshare).
Perhaps blockchain-based corporate voting systems will reduce the cost of votes to such a degree that shareholders will be able to more effectively exercise control over the companies they own pieces of. This could be a first step towards the decentralized companies that some blockchain evangelists hope will be a future corporate structure used for Internet-based businesses (of which I've been a critic of in the past).
Given that public company (and larger private company) shares are managed through electronic systems, it shouldn't be much of a leap to blockchain-based systems. The first step is probably to keep the current cumbersome proxy form system but have the votes recorded on a public ledger (blockchain) so voters can verify that their opinion has been received by the company they own shares in.
At the very least, service providers learning from Bitcoin/Ethereum (i.e. blockchain) will be learning about the importance of using hashes and cryptography as an integral part of their stack.
I don't think there is any production-ready system for managing corporate voting as of December, 2016. But I expect in 2017 even more announcements and hopefully a major player that switches over at least some portion of their securities management/investor communication platform to blockchain-based technology.
Some of the public securities management companies will also be developing robust systems for private companies to manage their shareholder votes. Once a system is developed and legal advice obtained for local corporate/securities law compliance, there should be a very marginal cost for rolling it out to additional customers/voters. There are far, far more private companies than public companies, even if the shares are much less widely held.
Blockchain technology works. Existing systems are digital. Corporate voting can legally be done electronically. Major industry players are investing heavily. I don't think the question is if, the question is when corporate voting via blockchain becomes reality.