Could Distributed Ledger Technology Aid Corporate and State Governance?
Blockchain technology has the potential to revolutionize corporate and state governance and consensus-reaching procedures such as voting. Some forward-looking institutions have already begun to experiment with this application of the technology.
Banco Santander partnered with the fintech firmBroadridge Financial Solutions, as well as J.P. Morgan Chase and Northern Trust to test-run blockchain-based investor voting at their annual general meeting (AGM) in May. The pilot blockchain voting was conducted alongside the AGM, with a blockchain being used to store a “shadow” registry of proxy votes. Santander hopes that utilizing blockchain in this fashion will enhance proxy voting transparency and lead to greater efficiency and a more secure voting process.
Banco Santander is the largest bank in the Eurozone in terms of market capitalization and has more than four million shareholders. More than 60 percent of the bank’s capital belongs to institutional investors, who had the opportunity to see how quickly blockchain technology could confirm and tally shareholder votes. Using traditional methods, calculating shareholder votes takes approximately two weeks—with blockchain-based voting, shareholders could see the possibility of instantaneous calculation.
In total, 21 percent of the participants in Santander’s AGM participated in the shadow blockchain vote. The Spanish bank hopes that a blockchain-based voting mechanism will encourage more shareholders to vote, which would further democratize the institution’s decision-making procedures. At last year’s AGM, almost 65 percent of Santander’s shareholders voted—a new record for the financial institution. Santander hopes that introducing blockchain-based voting will only push that number higher.
Offering blockchain-based voting also serves as a business venture for Santander’s Global Corporate Banking division, which functions as issuer’s agents in AGMs of more than 50 of the bank’s important clients.
Being able to tally votes in real-time will help Santander meet the updated European Directive on Shareholder Rights, which will come into effect in June of 2019 and will require information to be shared between intermediaries on the same business day.
Sergio Gámez, the Global Head of Shareholders and Investor Relations at Banco Santander, said in apress release, “The Annual General Meeting is one of the most important corporate governance events for any listed company. In the case of Santander, having very fragmented capital, it is very important to ensure the participation by investors and shareholders, and this year using blockchain technology for the institutional vote has been a great help in terms of transparency and agility across the vote lifecycle.”
Luis Antonio Perez, the Head of Corporate Services at Banco Santander, said, “The blockchain technology has enhanced efficiency and transparency upon the reception and vote tabulation process, which will result in bridging the gap between all in the process.”
Justin Chapman, the Global Head of Market Advocacy and Innovation Research at Northern Trust, said, “Corporate Governance is a key focus for our asset servicing business and we are pleased to include one of our clients, Legal & General Investment Management Limited, as a pilot investor in this important initiative as we extend our collaboration with Broadridge. We are excited about the next phase in creating end-to-end vote transparency using blockchain as an enabler.”
Banco Santander and Broadridge Financial Solutions conducted a proof of concept about one year ago on a test blockchain to ensure that the technology was sufficient for this pilot run. Since then, Broadridge has continued to experiment with distributed ledger technology using J.P. Morgan’sQuorum blockchain, an enterprise-focused version of Ethereum.
Broadridge Financial Solutions is a fintech corporation that offers investor communication solutions for banks, broker-deals, corporate issuers, and mutual funds. In addition to investor communications, the firm also provides securities processing and managed services solutions for their clients. The solutions provided by Broadridge undergird proxy voting for over half of the world’s public companies, corporate issuers, and mutual funds, and the company processes over five trillion dollars in securities trades daily. If an infrastructure provider as large as Broadridge embraces distributed ledger technology, that would be giant leap towards a blockchain-based financial system.
Patricia Rosch, the President of Investor Communication Solutions at Broadridge, said in apress release that, “The successful completion of a second pilot along with the next phase of our blockchain-based proxy voting solution demonstrates Broadridge’s continued commitment to developing innovative technology solutions in the re-imagination and improvement of global proxy to help our clients get ahead of today’s challenges.” She also added, “As a key innovator in capital markets and a leader in proxy, we continue to implement the newest technologies such as blockchain to improve corporate governance and address the latest regulatory requirements such as the Shareholder Rights Directive.”
The potential applications of blockchain-based voting extend beyond the private sector, however. In March, West Virginia became the first state to pilot testinternet voting via distributed ledger in their primary elections. The option to vote online was made available to overseas military service members exclusively, however West Virginia Secretary of State Mac Warner said if all goes well, the state plans on allowing all military personnel statewide to vote via blockchain during the general elections in November.
Warner told Government Technology Magazine, “I’m really not concerned about numbers, we’re really just looking at the technology.”
West Virginia is usingVoatz, a Boston fintech startup that offers blockchain-based voting solutions for governments, companies, schools, and other organizations that need a secure and immutable system to record and manage votes, to run their test pilot.
While this is not the first instance of distributed ledger technology being used for voting in the United States, it is by far the most high-profile. The other instances have been in much smaller situations such as town meetings, student government elections, and political party conventions.
Voatz uses biometric verification to ensure the validity of the votes it records, and to prevent an individual from voting multiple times in the same election. The use of a blockchain to record votes ensures that voting records cannot be hacked or otherwise tampered with after the election.
According to theUnited States Election Project, only about 55 percent of the voting age population (VAP) voted in the 2016 U.S. presidential election. According toPew Research Center, only about 50 percent of voting age millennials cast their ballots in 2016.
Blockchain-based online voting could provide a secure means of increasing voter turnout, especially among young people—imagine if casting your vote was as easy as taking an online survey, with some extra verification measures.
Distributed ledger enabled online voting has the potential to drastically improve these dismaying turnout statistics, while simultaneously preventing voter fraud, foreign interference, and human error from influencing the outcome of our elections. In addition, with a blockchain-based voting system that could tally votes in real-time, there would be no confusion surrounding the outcome of an election, eliminating the need for drawn-out recount procedures.
About the author
Cameron Carpenter is a student of economics and computer science at Sarah Lawrence College in Bronxville, New York. He is the President and Portfolio Manager of Gryphon Capital Management, a student-run investment firm. In his spare time, Cameron enjoys reading and playing chess.