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by Bradley Fink, May 23, 2017

Blockchain Comes To Corporate Governance With AST Proxy Voting


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An intriguing prospect for blockchain technology is the power to ensure transparency in voting, though the mainstream political system is unlikely to embrace this potential in the near future.

It’s more likely that this application will have to be established first in traditional finance, as demonstrated by AST, a professional services firm, and its plans to bring the blockchain to corporate proxy voting. Earlier this month, AST announced that it is working with blockchain specialists to “accelerate the delivery of new technologies that enhance transparency.” It is a big move from a big player in the world of corporate governance.

A Powerful Use Case

AST manages proxy votes for nearly 20 percent of U.S. issuers every year. As the top agent in mutual fund proxy solicitation, the firm is taking a major step with distributed ledger technology. By the start of the 2018 proxy season, AST plans to introduce a blockchain-enabled system for proxy vote tabulation, to be followed by a greater suite of blockchain-based offerings. To establish this platform, AST has partnered with NuArca, a company that develops solutions for immutable record keeping, radical transparency and machine-driven insight.

According to NuArca, the forthcoming solution will boost confidence in data management, allowing more informed decisions and strategic governance. It will also allow AST’s proxy solicitation experts to access predictive analytics with real-time data to help improve the standards of their business services. The foundation for NuArca’s immutable record keeping technology is called TransactChain, its proprietary blockchain solution based on Hyperledger’s code. TransactChain’s first use case will be the registration of transparent and immutable voting records.

For some time AST has been testing blockchain applications, and has already completed a working prototype of the new solution. According to AST’s president and CEO Brian J. Longe, “AST recognized early on the value and efficiency that blockchain can bring to our business and to the industry as a whole. As we look to the future, we plan to leverage internally-developed [distributed ledger technology] as well as best-in-class third party blockchain solutions to enhance our core services, ultimately improving shareholder experience and engagement.”

However, few specific details have been released about the new blockchain solution. Whether it will enable proxy voting on mobile devices or allow voters to access their own data still remains to be seen. But NuArca’s website indicates plans for “user experiences across desktop, laptop, and mobile devices.” And while this is just a first use case for corporate proxy voting, it may have greater implications for broader corporate governance.

Broader Potential

In early 2016, David Yermack, a Professor of Finance at the NYU Stern School of Business published a paper titled “Corporate Governance and Blockchains,” in which he explored the implications of blockchains on the future of corporate governance. In the paper, Yermack asserted that “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.”

Some of the game-changing use cases Yermack cited for blockchain technology include:

  • Enabling greater accuracy in corporate voting and eliminating strategies such as “empty voting” that are designed to separate voting rights from other aspects of share ownership.

  • Recording stock ownership of company insiders and retail investors.

  • Providing real-time visibility to insider buying and selling, eliminating chicanery such as the backdating of stock compensation.

  • Providing transparency so that investors can identify ownership positions of debt and equity investors (including a company’s managers) and overcome corruption on the part of regulators, exchanges and listed companies.

  • Providing transparency in earnings management and eliminating accounting gimmicks.

  • Lowering costs of trading and securing more transparent ownership records.

  • Permitting real-time observation of transfers of shares.

In his conclusion, Yermack wrote that “Any and all of these changes could dramatically affect the balance of power between directors, managers, and shareholders.” He sees a great deal of potential for leveling the field, with technology restraining corporate waste and misbehavior. If AST can see success with blockchain proxy voting, we will surely see more blockchain technology in the world of corporate governance.

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