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  • Cristina Lefter

Blockchain in Corporate Governance – the Tip of the Iceberg

Shareholders using blockchain to exercise their rights.
Blockchain in corporate governance

In the dynamic landscape of corporate governance, where transparency, accountability, and security are paramount, blockchain technology emerges as an outstanding solution. Revolutionizing traditional practices, blockchain offers a decentralized system that ensures immutable records, fostering trust and integrity in corporate operations.

As businesses face increasingly complex regulatory environments and heightened stakeholder expectations, harnessing the power of blockchain not only enhances governance mechanisms but also paves the way for a new era of corporate transparency and efficiency.

In this article, our objective is to provide a brief overview of the transformative capabilities of blockchain technology in corporate governance.

A reminder: what is blockchain technology?

Imagine blockchain like a big digital notebook where you can write down information, but once it's written, it can't be changed or erased. Each page of this notebook is connected to the next one, creating a chain of pages, hence the name "blockchain." This notebook is shared with lots of other people, and everyone has a copy. When someone adds new information to the notebook, everyone can see it, and because it's connected to the previous pages, they can be sure it's accurate and hasn't been tampered with. So, blockchain is like a super secure and transparent way of keeping track of information online.

How can blockchain technology be used in corporate governance?

Corporate governance succinctly encompasses the decision-making processes within corporations, including matters related to business administration, management, and future strategic planning. Blockchain technology is a promising option for listed companies characterized by a large number of shareholders. Nevertheless, its adoption can also bolster corporate governance for smaller, closely held companies featuring a more limited shareholder base.

What are the benefits of blockchain technology in corporate governance?

The main benefits of employing blockchain technology in enhancing share ownership transparency may be summarized as follows:[1]

  • Cost Reduction in Voting Procedures: Blockchain simplifies shareholder identification, reducing costs and time in proxy voting. It ensures real-time distribution of voting entitlements, minimizing the risk of shareholders losing their voting rights.

  • Accuracy of Ballots and Decision Legitimacy: Blockchain allows precise identification of voters, ensuring accurate voting processes and mitigating the risks of incorrect counting or overvoting. This boosts the legitimacy of corporate decisions.

  • Increased Transparency in Corporate Governance: Blockchain enhances share ownership transparency by tracking ownership in real-time, reducing discrepancies between recorded and beneficial shareholders, and aiding in fraud detection and prevention.

  • Streamlined Proxy Voting Architecture: Blockchain simplifies proxy voting, empowering shareholders to control their shares directly, making the process faster and more efficient, and enabling effective monitoring of proxy assignments and votes.

  • Enhanced Shareholder Democracy: Blockchain reduces barriers to participation in company decision-making, leading to stronger shareholder control over boards of directors, improved corporate governance, reduced agency problems, and increased market liquidity and capital efficiency.

What are the legal implications of using blockchain technology in corporate governance?

The legal implications of using blockchain technology in corporate governance can vary depending on the jurisdiction but would be expected to cover at least:

  • regulatory compliance such as the need to abide by corporate governance mandatory legal provisions, legislation concerning securities and legislation concerning personal data privacy and protection;

  • digital identity namely the applicability of legal provisions concerning both identification of signatories, as well as the binding nature of signatures;

  • liability and accountability or, in other words, responsibility for faults in using the technology.

In every scenario, considering the advantages offered by this technology, it is highly probable that blockchain will see increasingly widespread adoption in corporate governance. Exploring the legal ramifications of its utilization will likely necessitate a comprehensive series of articles merely to scratch the surface. Stay tuned for more.

[1] Based on the research included under this source: Panisi, Federico and Buckley, Ross P. and Arner, Douglas W., Blockchain and Public Companies: A Revolution in Share Ownership Transparency, Proxy-Voting and Corporate Governance? (May 1, 2019). 2 Stanford Journal of Blockchain Law & Policy 2019, University of Hong Kong Faculty of Law Research Paper No. 2019/039, UNSW Law Research Paper No. 19-100, Available at SSRN: 

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