WALL STREET JOURNAL.
Turning to Blockchain to Protect Investor Votes
Oct 21, 2016 3:33 pm ET
A Delaware judge is
calling on institutional investors to protect their voting rights by
turning to the blockchain.
Vice Chancellor J. Travis
Laster thinks the bitcoin-backing technology would make a good
plumbing system that would eliminate the middle-men in how shares are
actually held and voted.
In a speech to the Council
of Institutional Investors last month, released this week by CII, Mr.
Laster urges shareholders to take charge in trying to fix what’s an
archaic and complex system of who actually owns a share and how it
gets cast in corporate decisions.
The idea isn’t entirely
new. Delaware has been
exploring blockchain technology already
in the state and Mr. Laster has discussed the idea before.
Currently, the vast
majority of shareholders are what as known as “beneficial” owners but
their names aren’t on actual corporate books. That means it takes
extra effort to exercise all types of rights, such as seeking a
judge’s appraisal on a merger or getting a so-called legal proxy that
lets one vote for any board candidate. (This latter problem could be
removed soon by the SEC’s coming proposal to
move to a universal ballot
instead of competing ballots.)
The system creates a daisy
chain of middlemen to determine who actually owns a stock and makes
sure a vote is cast, argues Mr. Laster. (He goes into great depth if
you want to
read his full explanation about
That costs money and
creates the opportunity for mistakes.
“It generally works under
normal circumstances, but when the system comes under pressure, it
breaks down,” Mr. Laster’s prepared remarks say. “That should not be
For voting, a system like
blockchain that is transparent would allow holders to make sure their
vote is tallied the way they want. Today, most voting is done through
the company Broadridge Financial Solutions Inc. — brokers tell it how
to vote based on their client wishes.
Earlier this year, T. Rowe
Price found that a rare quirk in the system meant it
hadn’t voted the way it wanted in
the 2013 buyout of Dell Inc., meaning it couldn’t get the legal
appraisal it had been fighting for and Mr. Laster was granting other
shareholders. T. Rowe voted by telling Institutional Investor Services
Inc., which in turn told Broadridge.
Mr. Laster argues a
blockchain system would have made it easier for T. Rowe to make sure
its instructions were followed. It could also eliminate general
concern about over-voting and make it easier to determine who has the
right to vote, he says.
“This is a carpe diem
moment,” Mr. Laster said. “You can take the lead on distributed ledger
technology, or you can let the intermediaries replace one intervening
institution with another.”