How can Blockchain Tackle Issues in Proxy Voting

By February 1, 2020Ethereum
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Shareholder proxy voting, an integral process in the operations of corporations, is projected to become blockchain technology’s next widespread use case. Shareholder voting via proxies has become a common practice at the AGMs of modern corporations.

Based on the model of a corporation’s charter and bylaws, shareholder views are required for various reasons, like board elections, bylaw amendments, and business mergers. The prevalence of corporate governance and proxy voting mechanisms have resulted in several inefficiencies that affect the daily activities of corporations.

How the System Is Flawed

Proxy voting mechanisms rely on trusted intermediaries to achieve censorship resistance, consensus protocol, and immutability of votes during voting. Nevertheless, it isn’t easy for a voter to verify that their vote was included, counted, and not altered afterwards.

Besides, proxy voting avails voter information to some officials before the voting exercise. Research has indicated that over 80% of votes are now conducted using proxy voting. The recipient of the votes is already aware of shareholder views, which can create information asymmetries and obstructions.

However, the primary issue with proxy voting is that it is not transparent and often hard to tabulate perfectly. This is caused by intermediaries (proxy communication companies and tabulators) who make it impossible to track data. Such data issues, the absence of transparency, and the expensive, sophisticated voting methods of an AGM, call for an urgent solution.

Blockchain, being an immutable, transparent, and trackable record of data, could be the best prescription.

Proxy voting and blockchain technology

Blockchain-based shareholder voting will provide organizations with a secure and immutable digital copy of voting views expressed by shareholders during AGMs. It will warrant that voters exercise their rights safely and transparently, besides fostering cross-border investments.

Additionally, if regulators need access to voter information, they can access them through the private blockchain network. Since all records are accessible to every member, the voting instructions can be verified, traced, and cannot be tampered with.

Blockchain-based voting during AGMs will eradicate complexity and enhance the quality and effectiveness of proxy voting during AGMs. Auditors will be empowered to verify, in real-time, whether all votes have been cast, counted, and recorded appropriately.

A proxy voting carried on a blockchain network will minimize the voting errors and corruption. A simplified, transparent, and verifiable voting mechanism could also improve the involvement of shareholders, for the benefit of corporate governance.

Examples of blockchain-based proxy voting

In 2016, Nasdaq piloted the use of blockchain to record the ownership of securities and provide voting-right properties based on those properties to members. The firm partnered with the Tallinn Stock Exchange and took advantage of the existing digital identification methods. Subsequently, members with the right voting right asset can access important information, handover voting rights to any proxy, track the proxy, and recall when the need arises and check recent meetings and votes.

In 2017, ConsenSys- a developer of products on the Ethereum network- created BoardRoom. This is a blockchain governance platform for companies to simplify board member voting, budget allocation, and more.

Conclusion

Blockchain-enabled proxy voting offers many benefits to multi-national businesses with shareholders distributed globally. It will enhance corporate governance methods by bringing a competent, trustworthy, immutable, and verifiable voting system that eradicates fraud, boosts transparency, and raises shareholder participation.

For more blockchain use cases across different industries, click here!

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