2023 Spring Symposium Spotlight: Blockchain and Corporate Transparency

The question of “whether or not blockchain technology is here to stay” has been resoundingly been answered: yes, it is here to stay. “Blockchain” has entered the vernacular to encompass distributed ledger technology (DLT) as whole and will be used interchangeably in this blog noting that they are highly complex systems. Cryptocurrencies and non-fungible tokens (NFTs) represent an aspect of blockchain capability that is particularly visible and studied. Rather we will look to the adoption of blockchain technology in industry, particularly by large corporations in different facets of their organizations. Specifically, the role that blockchain is playing and will play in corporate transparency particularly as access and demand for information from stakeholders mounts. This blog will highlight some of the areas in which blockchain/DLT technology has been used by large companies in assisting with information disclosure.

Public corporations have a myriad of required public disclosures under the Securities Act of 1933 and 1934 as well as the Sarbanes-Oxley Act plus there are required and expected disclosures to their shareholders. Currently, about 150 million Americans, 58% of American adults, own at least one stock. However, less than a quarter of American trust big companies while more than two-thirds trust small companies, focusing on issues of authenticity, impact on the community, and governance. Additionally,, eighty-eight percent of institutional investors subject ESG disclosures to the same scrutiny as operational and financial considerations while sixty-four percent of all investors invest based on their beliefs and values. DLT technology through its emphasis on transparency can help companies improve relations with all its stakeholders from large shareholders to local consumers. 

Several companies have developed and implemented blockchain technologies for supply chain transparency. Walmart developed a food traceability system using DLT technology, here Hyperledger Fabric,  to trace the source each food item from source, transport, and retail placement. Walmart noted that it previously took days to fully trace the path a particular item had taken from source to shelf using their blockchain system it took 2.2 seconds. This development is critical as ninety-four percent of customers said it is important for brands and manufacturers to transparent about what is in their food and how it is made. De Beers (the second largest diamond producer) in 2018 piloted a DLT system, Tracr, that tracked 100 high-value diamonds form mine to retail to allow both the company and consumers to verify their individual diamonds to assure supply chain concerns and international law compliance.     

Companies have begun to develop blockchain systems that will assist them with their corporate governance. Public companies are generally required to have an annual shareholder’s meeting and allow all shareholders with voting rights (note the roughly 150 million Americans with stocks) to vote on different proposals and directors. The logistics of stock ownership due to central securities depositories, slow intermediary proxy firms, and indexing presents significant challenges to shareholder input and transparent corporate governance leading to inefficiencies and added costs. IBM has assisted the development of NuArca, which enables shareholders to vote using a blockchain system that is immutable and close to instantaneous. AST Financial is a proxy firm that successfully piloted the NuArca system to reach more than 8 million shareholders who own more than 1 trillion shares.

These are a few of the industry implementations of blockchain/DLT technology to bring more transparency to businesses throughout the world. The access to information must be a key part of all stakeholder relations particularly for global businesses. Blockchain/DLT systems are not just a fringe computer movement, they are and will continue to be an integral aspect of business. Topics such as these are growing in importance and are a component of all the JBIPL Spring Symposium panels. If you would like to attend this year’s Symposium, please RSVP here.

Carlo Ballesteros-Flores is in his third-year at Wake Forest University School of Law, and he serves as the JBIPL Symposium Editor. He graduated from Wake Forest University with a Bachelor of Arts in Philosophy and Political Science. During his time at Wake Forest Law, Carlo has worked with Wake Forest Athletics assisting the development of NIL regulation and Manning Fulton working with businesses throughout NC.