• Alexandra Andhov

Can blockchain become a corporate governance tool?

Blockchain became a buzzword over the past couple of years. First, in relation to Bitcoin and more recently by itself as a self-standing technology. Although, we have very few real life applications, many have recognized the potential of this technology and are willing to invest. Various projects have been initiated across supply-chain management, digital identity or real estate. Most presumably, we will hear more and more about the possible way blockchain could re-design our infrastructures and existing business practices.

When reading about a blockchain, its characteristics and features, my immediate thought went into corporate governance. By definition, blockchain is a system that offers greater decentralization and ability for larger group of stakeholders to participate. Blockchain can facilitate economic and legal transactions and become largely accessible with very few limitations (in case of open blockchain). Blockchain is also able to manage operations of existing legal entities, serving as a framework with smart contracts and potentially develop into networks, which can be used to coordinate people and machines. Such networks might provide beneficial for diverse organizations across the world, be it international corporations, lengthy supply chains or governments. Why not then use it for shareholders to more actively and accurately engage in decision-making processes of corporations?

In my recent article Corporations on Blockchain: Opportunities & Challenges (forthcoming with Cornell Journal of International Law), I analyse blockchain from the perspective of corporate governance and corporate law and come to a conclusion that blockchain could be used as a new fundamental design tool for modern corporate governance. Blockchain aims to help diverse stakeholders to come to an agreement even if they do not know each other and provide them with an infrastructure for flow of information, data, and money or possibly anything, as almost anything can be digitized nowadays. It can provide a space for decentralized communication platforms, file-sharing applications, social networks or voting mechanisms in publicly traded companies that have hundreds of thousands dispersed shareholders over the globe.

My article reflects on a possibility of using blockchain technology by corporations, focusing on empowering the position of shareholders in publicly traded companies. The technology, its advantages, risks and limitations are critically reviewed in order to understand how the technology works, but also whether the technology provides any additional value for shareholders and companies. Beside the efficiency rationale, one could argue that using blockchain could streamline voting and increase shareholder participation, which have been decreasing over the past decades. Blockchain could eliminate plausible voting fraud and manipulation by making votes immutable, verifiable and traceable. Decentralized ledger of shareholders would also reduce the need to enlist proxy solicitation firms to track shareholders and the information itself could be easily accessible. In many ways, blockchain could contribute to the governance transparency and minimise the information asymmetry that is so often utilized by few activist shareholders to the detriment of other shareholders or the corporation itself. There are a number of theoretical benefits that blockchain might bring.

On the other hand, a novel and untested technology brings various risks. Information might be sent to outdated addresses or the data might be simply wrong. Extremely sensitive documents may suddenly become exposed. Implementing the technology may eliminate diverse intermediaries who are gatekeeping the system and thus harm the functioning of the company or even the market. Many shareholders might remain rationally apathetic, and large institutional investors could continue to cast votes according to a prearranged formula even more easily than before. Therefore, as with any other innovation, one should be excited, yet cautious and critical when reviewing its benefits, and my theoretical hypotheses need to be tested by specific blockchain designs and practice.

There is no golden ledger panacea for all the challenges in modern corporations and their governance. Yet, blockchain design may solve several of the existing troubles that need to be approached by re-designing rather than re-regulating.

Alexandra Andhov - Faculty of Law, University of Copenhagen

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