Proxy voting, an essential component for efficient capital markets, is plagued with numerous issues that are the results of an ill-designed infrastructure that relies on multiple layers of financial intermediaries that have only access to a portion of the necessary information. Key stakeholders, including issuers and shareholders, are left questioning the efficiency and integrity of election results and the whole proxy voting process.
Regulators and market participants across the globe are pushing towards greater transparency and auditability of the overall proxy voting procedure. However, this objective will be difficult to achieve without revamping the infrastructure that support shareholder election process.
Blockchain technology appears to be the ideal candidate to support the enhancement of the proxy voting process, as it will provide an immutable, auditable and distributed single version of the truth to the heterogeneous set of participants involved in the process.
A Blockchain-based proxy voting record keeping platform, by improving the transparency of the process, would benefit all players. Issuers will again be able to interact directly and smoothly with their shareholders, and to query throughout the proxy cycle an efficient and transparent vote record keeping and reporting ledger. They will also gain greater insight on the cost structure of the proxy voting procedure. Shareholders exercising their voting power on corporate matters is likely to increase thanks to the reduction of friction in the voting process and the enhanced trust in the integrity of election results. Financial intermediaries will see the complexity of identifying beneficial owners of voting entitlement decrease as well as the cost of complying with future regulation.
American Stock Transfer & Trust Company may not be the only market participant that has identified proxy voting as a clear use case for Blockchain implementation. Nevertheless, the firm’s initiative has caught our attention for a number of reasons: first, AST has decades-long experience with proxy voting; secondly, it has focused his attention and resources on a single use case while most of the competing ventures were part of a broader portfolio of initiatives with Blockchain technology; thirdly, the solution has successfully been through a meaningful pilot testing last year and will be live this proxy season; finally, the platform is not trying to disrupt a niche frontier market, but aims at revamping the proxy voting infrastructure in the core market of capitalism that is the USA.