the potential impact of blockchains on corporate governance€¦ · blockchains on corporate...

THE POTENTIAL IMPACT OF BLOCKCHAINS ON CORPORATE

GOVERNANCE: A SURVEY ON SHAREHOLDERS’ RIGHTS IN THE DIGITAL

ERA

Véronique Magnier

Université Paris-Sud Paris-Saclay

Patrick Barban

Université Le Havre - Normandie

3rd International Conference- Zagreb december 2018 1

Characters of BlockchainsRegister

• Open to all users

• Unchanged without consensus procedure

• Data bank ranging from simple to complex

Exchange

• Virtual money and tokens

• Smart Contracts (if… then…)

• No intermediaries = no transaction fees

• Efficient Market (FAMA) = Prefect information and no transaction costs

Organize

• Automatization

• Ranking of users feasible

• Voting procedure


Permissioned Blockchains and Public Blockchains

CommonProcess security

Pseudonymous

PublicTransparency

No Intermediaries

Inertia

PermissionedOpacity

Presence of an intermediary

Dynamism3rd International Conference- Zagreb december 2018 3

Functional identity in Corporate LawRegister

• Information to shareholders

• Financial Information to the public

Exchange

• Securities issuance

• Securities selling / buying

• Shareholders’ agreement (Financial aspects)

Organize

• General Meeting organization

• Corporate organs power

• Shareholders’ agreement (Political aspects)3rd International Conference- Zagreb december 2018 4

Shareholders’ rights

Financial rights

• Approve the financial statement

• Affect profits

• Dividends

• Exit rights:

• freely transferable shares

• agreeements

Power to vote

• Right to attend Annual meeting

• Right to vote on AGM resolutions

• Right to add resolutions to the agenda

• Right to amend corporation bylaws

• Right to reincorporate in another State

Information

• Regular Information (annual, quaterly…)

• Information on specific agreements

• Financial & extra-financial information (public & large companies)

• Auditor reports

Faci

litat

es


PRINCIPAL - AGENCY ISSUES

Principals

engage the agent, to perform some service on their behalf

Agent

Should act in the

principal’s interest


Full disclosureInformation

Control on Agents

Agent may Actopportunistical

ly

Monitoring

Coordinatio

ng

Costs

Impact of corporate governanceon shareholders’ rights

Correct assymetry of information

• On Executive compensation

• On Conflicts of interests

• More Transparency

Control on Executives

• Incentives: Ex compensation aligned on shareholders’interest (Stock Options)

• ‘say on pay’

• Vote on major strategic decisions

• Vote on third party agreements

GOAL

=

Maximisation of shareholdervalue

shareholder primacy model


Question 1 :

How BC may improve‘direct democracy’?

Question 2 :

What are the potential risks?


Duty of information

General Information

• Name / legal Address

• Charts and Articles of association / Name of the representative

PeriodicalInformation

• Management Report

• Auditors Report

• Corporate Accounts

Public companiesinformation

• Enhanced Management Report

• Corporate Social Responsabilities Report / Internal Control

• Financial Information

• Financial Documentation to the Regulator

• Prospectus


Disintermediation / Dematerialization

One Blockchain

CorporateCommunication

(Permanent Information)

Financial Document

CorporateRegister

French Regulator

Infogreffe in France

Issuer

-3rd International Conference- Zagreb december 2018 10

Register of Shareholders

Emetteur

Intermédiaire

Issuance Account(hold the numbers of shares or bonds on

the market)

S S S

S S S

Blockchain

3rd International Conference- Zagreb december 2018S = Shareholder Account

11

ERC-884 Case

Information on Shareholders

Identity

Information on Titles

Token’sExchange

Encryption and production of tokens

Decryption for ShareholderIdentification

Classic Data Bank Blockchain Ethereum

Intermediary


Reinforced voting power on BC

Blockchain registersshareholders’ names

A

TOKEN

• AGM organized via BC: More participants

• Voting coins are directly transfered to theshareholder at the AGM

No more empty voting issues?

• No need for proxy in listed companies?

• Immediat & direct exercice of the voting right No more Blank Check Practice?

• Reduction of voting costs

• Disclosure : impact on shareholder activism?

A PA


Overcome shareholders Identification obstacles

Company

AII

Central depositary

€€ €

€

• Article L. 22

company BlockchainNo cost


Solve Beneficial owner issue

I BEII

BE

Company

First Layer

Last Layer

Frontier


Decentralized Autonomous Organization

3rd International Conference- Zagreb december 2018

Accounting Register Shareholder’s Register

Shareholder100000 euro of

earnings

Smart Contract :

GM

C. Accounts

Bank Account

Token

NO

YES

Decision: DividendDistribution ?

16

Organization of Shareholders’ Agreement through Smart Contracts

3rd International Conference- Zagreb december 2018

Advantages

Automatization = 0 cost

No need to go to court

If the clauses are clear and arithmetic = efficiency

Disadvantages

If the clauses are not lear neither arithmetic= need to ask a third party for enforcement

Limited to simple « If… then… »

17

Risks (1): Loss of confidentiality?

No more anonymous shareholding

exercice des droits associés à sa participation dans le capital d’une société

Sens de la Directive Actionnaires

A new intermediary should help find anonymosity

Trusted third party

Starw man (risk of appearance/reality)

But what if these intermediarie do not declare their third party position?


Risk (2): Potential conflicts of interests?

Actual

• Executive compensation: • « pay for performance »

• Say on pay

• Third party Contracts:• quantitative criteria

• Special report (auditors)

• AGM control

New

New opportunistic behavior on BC?

- No more trusted third-parties?

- Decentralized BC


Need: BC Legal expert?

Need

• Contractual clauses should be translated into Smart contracts or on the DAO

• Regulation should be translated into Smart contracts or on the DAO

Expertise

• Expertise in Digital and data processing techniques

• IP/IT law expert

• Business & Tax law expert

Statute

• Independance

• Auditor (internal/external)

• New ‘compliance officer’

• employee of the firm


Q&A


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