Blockchain in Corporate Governance: Implications for Attorneys

Blockchain-based information storage, retrieval, and tracking have the potential to be more immediate, transparent, and credible means of business recordkeeping than alternatives involving a centralized point of control.[1] As a result it should be unsurprising that corporations have begun to adopt blockchain-based recordkeeping. The adoption of blockchain-based information-tracking by corporations is forecasted to grow rapidly and constitute a far greater and more permanent disruption to daily realities than other applications of blockchain have brought about to date. This practice has the potential to significantly alter aspects of corporate governance – specifically, those involving data-tracking or communication.

Our recent article, Blockchain, Corporate Governance, and the Lawyer’s Role, explores this connection between blockchain information-recording and corporate governance, defined broadly.  The article also examines the legal advisory implications of using the technology in several scenarios involving corporate governance.

Our observations extend from blockchain’s obvious relevance to shareholder recordkeeping and voting, through implications in the context of insider trading, to more general issues related to mandatory disclosure. Disclosure on public blockchains – arising from the interplay between a technology enabling fuller transparency and the rules mandating public company disclosures – leads to some of the most intriguing questions. The legal requirements set by some statutes and regulations to monitor internal controls and publish certain information may be satisfied by blockchain-enabled information tracking. The technology, after all, has the potential to assure that records are not altered and to make information automatically and instantly available. However, if information is continually and credibly communicated on blockchain-based platforms, does management have a duty to update that information (by issuing further statements or clarifications or event-based announcements)? Does the availability of a constant (but possibly overwhelming) stream of data on a blockchain-enabled platform really serve the goal of informing the reasonable investor? These are examples of questions that current laws and interpretations do not answer.

We identify issues like these that will foreseeably arise when blockchain-enabled information systems are deployed in the context of laws that were written in another era. In some of these contexts, existing rules and principles may be adequate, and we are able to arrive at reasonable guesses as to legal conclusions. However, in other conceivable scenarios, our application of existing rules and principles leads to questions rather than answers.

This realization – that existing laws and principles may be inadequate to guide businesses and attorneys in certain scenarios involving public company blockchain-based recordkeeping – leads us to a call-to-action. We suggest that policymakers may want to address these legal lacunae before they result in disappointments, disruptions, and disputes. Absent clarifications, we suggest that judges may need to prepare to retroactively resolve disputes in these contexts.

We also shared observations and guidance for attorneys and the practice of law in the nascent context of blockchain-enabled corporate governance. Some of these themes were touched upon in an earlier work authored by one of us: Blockchain, Business Supply Chains, Sustainability, and Law: The Future of Governance, Legal Frameworks, and Lawyers. Our knowledge that blockchain applications in business finance, governance, and operations are increasingly being employed in an uncertain regulatory context motivates this work.

Our specific recommendations relating to lawyering cover several areas. First, we advise attorneys not only to stay updated about applicable law and relevant interpretations, but also to expand their awareness. Serving clients responsibly will require more familiarity and astuteness with technology and operations. Second, we urge our colleagues in the practice of law – including those involved in the making and administration of laws – to be uncharacteristically forward-looking. It is prudent to be proactive in the contexts of advising firm management and public policymaking. Overall, we highlight that counsel has a critical role in thinking through all the implications and contingencies resulting from a move of any governance function or process to a blockchain-based platform.

It may well fall to attorneys to help clients see and appreciate irrevocable consequences and the potential risks and opportunities. We suggest that anyone engaged in the practice and study of law has a role to play in provoking conversations and new ideas for policy solutions in the context of ambiguities. Eliminating doubts about the adoption and consequences of blockchain-enabled corporate governance will create more certainty for market participants and society.

Finally, we discuss a conceptual reframing that several authors have suggested will be useful as a way of understanding our new role as attorneys. We proffer that that the lawyer’s role will evolve into that of a sort of translator – helping to transform human norms and values into software code. This is a key function in assuring that the deployment of technology serves its intended ends.

This reconceptualization of business lawyering is relevant to the functions of legal educators and law schools. Based on our observations, there undoubtedly will be a growing need for lawyers who are familiar with both how blockchain technology can be deployed and laws relevant to corporate governance. Law schools should consider evolving their courses and business law curricula accordingly.

ENDNOTE

[1] This potential is clearest if information is stored in a public blockchain – or at least in a blockchain that affords access to nodes of information to parties outside of the business firm.  Some would assert that this use of blockchains is vital in fulfilling the technology’s potential to provide records that are reliably tamper-proof.

This post comes to us from professors Adam Sulkowski at Babson College and Joan MacLeod Heminway at the University of Tennessee College of Law. It is based on their recent article, “Blockchain, Corporate Governance, and the Lawyer’s Role,” available here.