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Blockchain
and the future of proxy voting
November 18, 2016
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By Jeff Cossette
In theory, blockchain
could end errors, improve efficiency, reduce costs and support deeper regulatory
oversight
It’s official: Wall Street is going gaga
for blockchain. According to a recent World Economic Forum (WEF) report, more
than $1.4 bn has been invested in blockchain technology in the past three years,
with more than 90 firms coalescing into rival groups. The motive is plain:
distributed ledger technology, commonly known as blockchain, coupled with the
underlying idea behind crypto-currency bitcoin promises to revolutionize the
infrastructure of modern finance and investment.
Giancarlo Bruno, head of financial
services industries at the WEF, announcing the report’s publication, says:
‘Rather than stay at the margins of the finance industry, blockchain will become
the beating heart of it.’
One financial services function ripe for
reimagining is the
proxy voting
process. A blockchain can, in theory, end errors associated with manual audits,
improve efficiency, reduce reporting costs and – potentially – support deeper
regulatory oversight. This potential has not been lost on Broadridge Financial
Solutions, America’s largest provider of electronic proxy voting. The company
has come out as a leading blockchain investor, devoting internal resources to
‘proofs of concept’ and snapping up blockchain tech start-ups, most recently
with a $135 mn investment in INVeSHARE.
Chuck Callan, senior vice president of
Broadridge Financial Solutions, tells IR Magazine that the INVeSHARE
technology would let Broadridge ‘more quickly develop blockchain applications
that have the potential to bring significant benefits to the proxy process over
the years to come.’ Callan explains that those benefits include better security,
increased vote confirmation transparency and easing of the complexity of the
current reconciliation process. ‘Our intent is be first to market with a
complete proxy blockchain solution,’ he adds.
Broadridge may end up doing just that –
or not. ‘In theory, blockchain poses an existential threat,’ explains Sean
Stannard-Stockton, president and chief investment officer at Ensemble Capital.
‘Any time you have a disruptive technology, there is potential for newcomers to
replace incumbents.’
And while it’s no sure thing, blockchain,
by enabling secure record keeping of transactions without the need for trusted
third parties, could indeed prove fundamentally disruptive. ‘Acting as a trusted
third party in this regard is pretty much exactly what Broadridge’s business
model focuses on,’ notes Stannard-Stockton.
Still, the California-based investor
remains bullish on Broadridge. ‘We think it’s a technology to keep an eye on,’
Stannard-Stockton says. ‘But it is a technology that Broadridge is most likely
to bring to market. Its services are already embedded in customers’ day-to-day
operations. There’s not much thought around here along the lines of, Could we
save money by switching to somebody else?’
In whatever form, what would all this
secure and transparent efficiency suddenly flooding the proxy plumbing mean for
investor relations? Would retail voting frequency increase? Would the total
number of counted votes rise? How might this alter the relationship between
companies and activist investors? Would tallies be made available to the
corporation and/or voters in real time? The WEF report notes that storing proxy
statements on the ledger may enable investors to conduct personalized, automated
analyses in the future.
True Wall Street game-changers tend to
have unexpected consequences for markets and business models. Nevertheless, what
the blockchain means for Broadridge – or other third-party proxy intermediaries
– is probably more predictable than its ultimate impact on the field of investor
relations. Yet one outcome is clearly etched on the horizon: in tandem with
rising investor activism, there is an emergent need to engage all shareholders
throughout the voting process.
The article
appeared in the Winter issue of
IR Magazine
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