Blockchain and Public Companies: A Revolution in Share Ownership Transparency, Proxy-Voting and Corporate Governance?

2 Stanford Journal of Blockchain Law & Policy 2019

33 Pages Posted: 12 Jun 2019

See all articles by Federico Panisi

Federico Panisi

University of Brescia

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law

Douglas W. Arner

The University of Hong Kong - Faculty of Law

Date Written: May 1, 2019

Abstract

Under the traditional paradigm, the shareholder was the one in whose name company shares were registered. However, for public companies in the US, this system became highly inefficient by the 1960s due to high numbers of transactions. As a result, shares began to be “immobilized” at central securities depositories (“CSD”s) and held through the Indirect Holding System (“IHS”), with share transactions settled through “book entries,” first in the US and then in other major markets. Although market liquidity benefited, the system broke the direct relationship between companies and shareholders, introducing also a discrepancy between “recorded shareholders” and “beneficial shareholders.” Communication solutions were developed to bridge this discrepancy and allow “beneficial shareholders” to cast their votes through proxies. However, they currently rely on highly intermediated “pass-it-along” architectures, which cause several inefficiencies, the costs of which are borne by the shareholders themselves and raise questions in the context of collateralization. By increasing share “ownership transparency,” blockchain has the capacity to streamline the entire share ownership architecture. Indeed, blockchain could enable the tracking of share ownership through the complete settlement cycle, enhancing the “shareholder democracy” of listed companies, and benefiting their corporate governance and the market in their shares. However, blockchain also brings risks, including those related to greater ownership transparency. Consequently, a management system for the digital identity of share transactions is necessary to foster the benefits of such blockchain-based voting architectures, while reducing the risks.

Keywords: blockchain, custody, central securities depositories (CSDs), indirect holding system (IHS), intermediated securities, proxy voting, corporate governance

Suggested Citation

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. Available at SSRN: https://ssrn.com/abstract=3389045

Federico Panisi

University of Brescia ( email )

Piazza del Mercato, 15
Brescia
Italy
+393470132657 (Phone)

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law ( email )

Sydney, New South Wales 2052
Australia

Douglas W. Arner (Contact Author)

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

HOME PAGE: http://hub.hku.hk/rp/rp01237

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