Blockchain for Corporate Governance

Introduction

The pandemic that developed throughout 2020 has introduced and made new modes of personal and professional interaction normal. Despite the limits and problems encountered, the cultural change has already occurred, and remote collaboration has become a common asset that cannot be ignored. This change will also affect the assembly activity, which, since the beginning of the health emergency, has been subject to a series of legislative measures that have begun to modify the habits of operators and pose a series of practical problems.

This document aims to analyze and develop the potential applications of blockchain technology to corporate governance activities.

Regulatory interventions

The European legislator, with Directive no. 828/2017 “On the encouragement of long-term shareholder engagement,” has outlined the objectives on three key lines:

• identification of shareholders.
• transmission of information
• facilitation of the exercise of the rights of the same shareholders.

This directive is entirely based on parameters of transparency, accuracy, reliability, objectives that can be easily satisfied through a DLT technology.

Assembly meeting

In a private permissioned blockchain, managed by the company and updated only by shareholders authorized by the permissioner, the conditions for holding a “completely remote” assembly would be realized, in which shareholders holding sufficient shares could present their proposals and express their votes in assembly with certainty of the results that are distributed on all the registers of the network.

Voting right

Remote voting could be realized by assigning voting tokens to those entitled, representing the voting power of the shareholder. The blockchain would allow the traceability of the voting operations, ensuring transparency and, at the same time, protecting the voter’s privacy, while preventing tampering or deletion of the votes cast.

The emergency, first health and then economic and social, caused in our country by the Covid-19 epidemic has required the adoption not only of urgent social and health measures aimed at combating the spread of the virus but also of equally necessary initiatives aimed at facing the serious economic and organizational difficulties in which companies have found themselves. In particular, the D.L. 17 March 2020, no. 18 (so-called “Cura Italia Decree”) introduced some specific provisions in company law, aimed at ensuring the operability of social bodies, whose application has been repeatedly postponed through subsequent measures, given the prolongation of the state of emergency.

Individual profiles: analysis of the discipline.

The assembly: convocation, implementation, and intervention procedures.

The company’s assembly acts under the direction of the president, who declares the regularity of its constitution, opens and directs the discussion on the topics indicated in the agenda, calls for a vote, and controls and declares the result.

The secretary or notary, who assist in the assembly, describe its activity as resulting from the president’s statements and also summarize the statements of the members who request it.

The discipline of the right to intervene in the assembly appears functional to the expression of the vote since intervention is allowed to those who have the right to vote, even if they are not members. In joint-stock companies, article 2370, paragraph 4, of the Italian Civil Code allows intervention in the assembly by means of telecommunications, and it must be considered admitted not only the connection in videoconference but also by telephone or with other telematic tools for the exchange of messages in real-time, provided that the collegial method is respected.

The statute can also allow for voting by correspondence or electronically and can also provide for direct electronic voting by the member who participates in the assembly via telematics, using specific measures aimed at guaranteeing the identification of the shareholders and the attribution of the vote’s origin. The issue of voting by correspondence in listed companies receives specific regulation in the Italian Financial Law (TUF), where article 127 provides that CONSOB (the regulatory body for the Italian securities market) establishes by regulation the modalities of exercise of the vote and the conduct of the assembly.

Article 106, paragraph 2, of the Italian Legislative Decree of March 17, 2020, no. 18, provided that, even in derogation of the different statutory provisions, with the notice of convocation of ordinary or extraordinary assemblies, joint-stock companies, limited partnerships, limited liability companies, and cooperatives could allow for intervention in the assembly by means of telecommunications.

The objective of procedural simplification that partly inspired the drafting of article 106 of Legislative Decree no. 18/2020 was pursued by the possibility granted to the aforementioned companies to provide that the assembly would be held, also exclusively, by means of telecommunications that guarantee the identification of the participants, their participation, and the exercise of the right to vote, without the need for the presence in the same place of the president, secretary, or notary.

Article 106, paragraph 2, of Legislative Decree no. 18/2020 established, “in any case,” that there was no “need for the president, secretary, or notary to be in the same place, where provided,” even in derogation of statutory clauses that require the presence of these individuals in the same place, in the case of an assembly in which all participants are connected in audio/video conference. In this case, the assembly report could be drawn up later, with the signature of the president and the secretary or notary.

The emergency legislation – whose validity was last extended until July 31, 2022, by article 3 of Legislative Decree no. 228 of December 30, 2021 – therefore allowed any company to oblige (stating it in the convocation notice) members to participate in the assembly in audio/video conference, without any physical presence of the participants in the place chosen for the meeting: anyone who wished to participate in the assembly was required to connect in audio/video mode, unable to physically present themselves at the place of convocation. Among the new means of communication that can easily be used to hold company assemblies in compliance with corporate regulations, Skype, WhatsApp, and all other digital video conferencing platforms can be listed.

When holding a virtual assembly, indicating a physical location in the notice of convocation may seem irrelevant: in fact, if the assembly is conducted via audio/video conference, the secretary only needs to certify the fact that the meeting was held online.

Right to vote.

Article 106, paragraph 2, of the Legislative Decree no. 18/2020 established that, regardless of statutory provisions, any type of company could allow “the expression of the vote electronically” or “by correspondence” during the period of the health emergency, by providing for it in the notice of convocation.

Therefore, the shareholder could express their vote in one of the following ways: directly, by personal attendance at the meeting (even remotely, through audio or video connection), indirectly, through representation, or virtually, by postal vote or electronic means (if provided for by the statute). The shareholder, even if not personally attending the meeting, could still contribute to the formation of the corporate will by exercising the right to vote by mail, which also included voting by e-mail, provided that the technical means used ensured the attribution of the vote to the legitimate shareholder.

To enable the shareholder to exercise their right to vote correctly and consciously in an extra-assembly setting, it was necessary to prepare, for each item on the agenda, a proposal for resolution. It was not sufficient to only know the matters to be discussed: the drafting of these preparatory documents was the responsibility of the administrative body, which had to comply with all the formalities necessary to enable the exercise of postal voting every time the shareholders‘ meeting was convened.

Consequently, the shareholder’s expression of will was based on a rigid pattern of adherence or opposition to a pre-formulated proposal, on which the shareholder could not effectively intervene: any additional statements or proposals different from those for which the shareholder was called to express their vote were of no value.

For limited liability companies, Article 2479, paragraph 3, of the Italian Civil Code allows – subject to certain exceptions – the possibility of making decisions without a meeting, provided that there is an express statutory provision to that effect. This is one of the expressions of the direct management of the company by the shareholders, which is manifested both through the elimination of the dualism between the assembly and the administrative body, and through the simplification of the assembly’s functioning, up to allowing the possibility of making decisions outside the assembly, by separately collecting the individual consents expressed in writing by the shareholders themselves.

End of the emergency period.

For the meetings to be convened by 31 July 2022, limited liability companies could allow the expression of the vote to take place in any case through written consultation or written consent.

Therefore, written consultation could also be used in cases where the possibility of resorting to this decision-making procedure was previously excluded, that is, even in the case of a resolution involving “a substantial modification of the corporate purpose set out in the articles of association or a significant modification of the shareholders‘ rights”, in the case of a resolution containing a measure to be adopted in the event of significant losses, and when there is a request for a joint meeting by “one or more directors or a number of shareholders representing at least one third of the share capital”. In the case of a resolution involving amendments to the articles of association, pursuant to Article 2480 of the Civil Code, in combination with the provision of Article 2436 of the Civil Code, the written consent and written consultation must be formalized in a public deed, in order to be able to amend the statute of the limited liability company and to publish the resolution in the Business Register.

With reference to listed companies, article 106, paragraph 4, of the Legislative Decree of March 17, 2020, n. 18 had provided that they may identify and make use of the services of a “designated representative”, even in cases where the bylaws contain an opt-out clause under article 135-undecies, paragraph 1, of the Consolidated Financial Act (TUF).

Furthermore, it was established that the company may indicate this mode of intervention at the shareholders‘ meeting as the only viable option, thus imposing on shareholders the choice between non-intervention and intervention mediated by the representative designated by the company. The latter could also be granted proxies or sub-proxies under article 135-novies of the TUF, in derogation of article 135-undecies, paragraph 4, thus further facilitating the intervention (albeit through a representative) of shareholders located throughout the national and international territory.