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Nov 17, 2016

Blockchain and the future of proxy voting

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