By Jessica Otiono
Corporate Democracy requires that shareholders actively participate and exert influence in the governance affairs of their Corporation. The Corporate democracy theory accords with the doctrine of shareholder primacy, “the view that directors’ fiduciary duties requires them to maximize shareholder wealth and precludes them from giving independent consideration to the interest of other constituents.” The relationship between the Board and Shareholders in the corporate governance sense is an agency relationship with shareholders as principals enjoying certain rights.
Shareholder rights are essential to a publicly traded company’s share ownership because it allows its owner to influence the company’s direction and hold its management accountable. Over the years, shareholders have actively participated in corporation affairs through voting, shareholder proposals, and shareholder derivative litigation. The right to vote is so sacrosanct that courts have found that a Board cannot impede this right without compelling justification.
To exercise their right to vote, shareholders at publicly traded companies may vote in person during an annual general meeting (AGM), through the mail, or through corporate proxies. However, many shareholders are not motivated to vote in person during AGMs because of the mindset that their small stake in a corporation will have minimal impact on the result of an action.  Shareholders who want to vote but not in person have the option of proxy voting. However, proxy voting relies on multiple layers of intermediaries, including financial institutions and information service providers, which makes it inefficient, costly, and complex due to a lack of transparency. Fortunately, Blockchain technology could provide smart solutions for the classic inefficiencies in corporate governance.
Blockchain technology is a distributed ledger system that allows for the creation of secure and presumably immutable records. In a Blockchain system that operates on a decentralized peer-to-peer network, information is stored on a public or private ledger and contains all executed transactions. To date, most applications of blockchain technology have been to record transactions, including digital assets such as cryptocurrency. Blockchain is a crucial tool today because it provides immediately shared and completely transparent information stored on an immutable ledger that only permissioned network members can access. An immutable ledger means that nobody can tamper with a transaction after it has been held on a shared ledger. Blockchain Technology may solve the challenges and complexities of shareholder voting and corporate monitoring structures in several ways.
Reducing Agency and Monitoring Costs
Blockchain may reduce agency and monitoring costs associated with the Board’s mandatory disclosures to shareholders under their fiduciary duties. The Corporation may give shareholders permissioned access to real-time records and increase verified secured communication to reduce burdensome disclosure requirements, thus establishing trust between directors and shareholders.
Share ownership Transparency
Blockchain could provide a transparent overview of share ownership. All holders of record shares at a publicly traded company would be visible while allowing for real-time observation of the transfer of shares from one owner to another. Managerial shareholder ownership would become more transparent, and minority shareholders would immediately know their ownership amount and have immediate access to their ownership rights.
Blockchain could be a viable substitute for archaic mail voting or corporate voting systems. Shareholder votes could be recorded on a permissioned distributed ledger that could be managed directly by the Corporation or by the shareholders themselves. Shareholders could use Blockchain technology to designate proxies to vote on their behalf by providing a private key to the voter’s proxy, which allows the voter to determine precisely how many of their shares were voted.  This process improves the speed, transparency, and accuracy of voting resulting in less litigation when votes are mistakenly cast.
The use of Blockchain technology to improve shareholder participation comes with certain risks like tampering with data before it is stored, insufficient or erroneous coding, hacking by cyber criminals, and threats from increased levels of transparency. Also, adopting, operating, and maintaining Blockchain would raise additional governance, regulatory, and liability concerns. However, it is up to Corporations to determine how to structure blockchain operation and maintenance in the best way possible to ensure transparency and trust.
In conclusion, Blockchain, despite some of its challenges, has the potential to significantly improve governance in publicly held companies by creating an efficient and transparent framework that ultimately improves shareholder participation.
 See Jason Gordon, What is a Shareholder Democracy?, The Bus. Professor (Sep. 25, 2021), https://thebusinessprofessor.com/en_US/business-governance/shareholder-democracy-definition.
 See Ian B. Lee, Efficiency and Ethics in the Debate About Shareholder Primacy, 31 Del. J. Corp. L. 533 (2006).
 Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 661 (Del. Ch. 1988).
 See Alexandra Andhov, Introduction: Corporations on Blockchains: Opportunities and Challenges, 53 Cornell Int’l L. J. 1, 22 (2020).
 Mark van Rijmenam, How Blockchain Proxy-Voting Improves Shareholder Engagement, The Digit. Speaker (Oct. 3, 2019), https://www.thedigitalspeaker.com/blockchain-proxy-voting-improves-shareholder-engagement/.
 See Anne Laffere & Christopher Van Der Elst, Blockchain Technology for Corporate Governance and Shareholder Activism, Harv. L. Sch. F. on Corp. Governance (Mar. 27, 2018), https://corpgov.law.harvard.edu/2018/03/27/blockchain-technology-for-corporate-governance-and-shareholder-activism/.
 Anne Lafarre & Christopher van Der Elst, Blockchain Technology for Corporate Governance and Shareholder Activism, Egci (Apr. 9, 2018), https://www.ecgi.global/news/blockchain-technology-corporate-governance-and-shareholder-activism.
 Stuart D. Levi et al, Emerging Discovery Issues in Blockchain Litigation, Legal Tech News (Apr. 3, 2019, 7:00 AM), https://www.law.com/legaltechnews/2019/04/03/emerging-discovery-issues-in-blockchain-litigation/.
 See What is Blockchain Technology, IBM, https://www.ibm.com/topics/what-is-blockchain (last visited Feb. 11, 2022).
 See id.
 Soroya Ghebleh, On Governance: How will Blockchain Technology Change Organizational Governance, The Conf. Bd. (Mar. 21, 2018), https://www.usatoday.com/story/news/politics/2019/09/06/what-you-need-know-california-ab-5-gig-economy-bill-uber-lyft-drivers/2213459001.
 Andhov, supra note 3 at 18.
 See id.
 Spencer J. Jord, Blockchain Plumbing: A Potential Solution for Shareholder Voting? 21 U. Pa. J. Bus. L. 706, 731 (2019).
 See id.
 See Federico Panisi et al, Blockchain and Public Companies: A Revolution in Share Ownership, Transparency and Proxy Voting, and Corporate Governance, 2 Stan. J. Blockchain L. & Pol’y 189, 216 (2019).
 Andhov, supra note 3 at 35.
Image Source: https://analisisdemedios.blogspot.com/2017/09/el-significado-de-blockchain.html.