Enterprise Blockchain Projects - Proxy Voting
Overview – Blockchain adoption for proxy voting applications
Annual General Meetings are supposed to be an ornament of transparency that is associated with publicly listed companies. Important decisions that influence business and sustainability performance of the company are put to vote in front of all shareholders, irrespective of the number of shares held by them. In most companies, each share accounts for one vote and therefore, the participation of each shareholder can be critical.
Proxy voting has emerged as an important tool for corporations to invite participation of all shareholders, and several traditional and digital channels are being used by companies to facilitate proxy voting. Despite being an important tool for bringing transparency, active ownership and making customer-centric decisions, today’s scenario of the proxy voting process has significant headroom for improvement.
According to Broadridge, 86% of the institutional investors, and 27% of retail investors voted in 1040 annual meetings held between July 1 and December 31, 2017. The poor participation of retail investors in the voting process is a cause for concern because it gives disproportionate power to active investors, which could adversely influence corporate decisions. This becomes an even bigger problem, in small and mid-cap companies where institutional shareholding is low, and low turn-out of retail investors can give disproportionate voting power to promoters of the companies. The current proxy process is also expensive and error-prone as it involves significant manual intervention.
Companies are rapidly moving to digitized proxy-voting and virtual shareholder meetings. However, the processes adopted by each company varies. If the stock-exchange creates a central blockchain based registry of all shareholders of public companies with a provision of proxy voting, it can yield significant benefits in terms of transparency, efficiency, and uniformity.
The major stakeholders involved in the proxy voting process are corporations, institutional investors, retail investors, regulators, stock exchanges, proxy voting/ advisory firms. All these stakeholders stand to gain if scalable blockchain platforms can be used for proxy voting. Some of the key benefits that these stakeholders can derive from the adoption of blockchain in proxy voting are as follows:
- Increase in the number of voting shareholders at the expense of minority shareholders who usually do not participate in the voting process because of its high expense.
- Eliminate the process of printing and distributing proxies as all the details regarding the meeting and the agenda can be easily made available to investors online or through their phone.
- Eliminate the errors arising from human intervention as the process can be completely automated.
- Provide real-time access to voting results to shareholders and enable exchanges to trace full voting history in real time.
- Improve the corporate governance of companies by increasing the participation of retail investors
It is heartening to see that several industry stakeholders have initiated blockchain projects to make the proxy voting process more transparent and efficient. Learnings from these projects can pave the way for commercialization and larger adoption of this technology that can truly democratize the way retail investors own public companies.
Select Enterprise Projects/ Blockchain Use Cases
Stakeholders: Bank, Investment bank, Financial services firm
Key Benefits: The platform will provide increased transparency of proxy voting. A client will be able to gain daily insight into voting progress.
Stakeholders: Banks and Wealth management firm
Key Benefits: The platform will eliminate make proxy voting system transparent, cost-efficient, faster and audit-able, which will help improve the participation of retail shareholders.
Stakeholders: Stock Exchange
Key Benefits: It will improve efficiency and accuracy of the voting process during annual shareholder meetings, while enhancing security through cryptography.
Please note that we have only included those projects/ use cases, which have been selected by enterprise clients, non-profit or government organizations to improve their existing business applications and processes, or to develop new solutions for their customers. We have not included independent blockchain platforms which claim to provide solutions for improving existing applications by using blockchain unless such solutions have been adopted by existing enterprises.
For each project, we capture all relevant details including stakeholders/ organizations involved, vendors involved, application/ use case, geographic footprint, benefits to each stakeholder, implementation challenges, project timelines, the current status of the project, and comments from senior decision makers involved in the project. This information, along with additional research is used to deliver customized research solution to senior IT decision makers, and technology vendors who are developing blockchain solutions for enterprises.