Summary of Vice Chancellor Travis Laster's "The Block Chain Plunger: Using Technology to Clean Up Proxy Plumbing and Take Back the Vote"

This summary was prepared in substantial part by Matthew Arnold.

On September 29, 2016, Vice Chancellor Travis Laster gave the Keynote Speech at Council of Institutional Investors. Entitled "The Block Chain Plunger: Using Technology to Clean Up Proxy Plumbing and Take Back the Vote," Vice Chancellor Laster's lecture was aimed at fixing certain identified problems with the voting and stockholding infrastructure of the U.S. securities markets.  First, Vice Chancellor Laster discussed how the complexities of the nominee system, centered through the Depository Trust Company (“DTC”), harm the stockholders’ ability to get appraisal of their shares.  He stated that Delaware law, by implementing Article 8 of the UCC, is unhelpful to the shareholders.  Specifically, Vice Chancellor Laster used an example from appraisal litigation before his Court in 2015.[1]  In Dell, stockholders sought an appraisal of their shares.  However, ownership changes driven by DTC were regarded as voluntary transfers by the shareholders, and therefore, the shareholders lost standing since they did not continuously hold the records.  Vice Chancellor Laster believed that this result was “absurd” since this was an example of shareholders doing what they were supposed to do, and being punished for it.  It if were not for the complexities, the shareholders would have had standing. 

Next, Vice Chancellor Laster discussed how the nominee system creates issues for voting.  Under the current system, it is not certain that a shareholder can obtain “end-to-end” confirmation as to how its shares were voted.  He used an example where T. Rowe Price was a beneficial owner of several million shares, and due to the complexities in the system and human error, was recorded as voting in favor of a merger, when in fact it had voted against the merger.  This resulted in hundreds of millions of dollars in losses for T. Rowe. Further, this led to uncertainties in how stockholders actually voted.  The Vice Chancellor bluntly stated “the sheer complexity of the current voting system makes precision impossible.”  Lastly, Vice Chancellor Laster discussed how this system is expensive for shareholders.  Shareholders are asked to pay maximums in fees.  In conclusion, Laster stated that the costs are both the financial cost and the uncertainty in the shareholders voting.

Vice Chancellor Laster proposed that this system can be solved through distributed ledger technologies, which would “provide better accuracy, greater transparency, and superior efficiency for settling securities trades and voting in corporate elections.”[2]  A distributed ledger is a database of recorded transactions maintained collaboratively by a decentralized person.  The Vice Chancellor pointed to Bitcoin as the example for this system.  With Bitcoin, when a Bitcoin miner finds a cryptographic key, other users assess if that key is correct, and if a quorum of users agree, they miner gets a Bitcoin. 
Here, beneficial owners can transfer ownership over securities with a central intermediary like DTC.  Shareholders can verify themselves through embedded signatures and the system can accept or reject changes to the ledger.  This would happen almost immediately, and would erase the complexities of the current system.  Vice Chancellor Laster stated that the system would allow only one type of owner: record owner, thus alleviating the concerns about inaccurate votes.  Lastly, Laster proposed ways in which people could provide automatic responses to specific conditions or events under this system, making it much easier on the shareholders.

Vice Chancellor Laster asserted that this is a “carpe diem” moment, and the shareholders need to take the lead on this technology.  Using Delaware as an example, he discussed the Delaware Blockchain initiative implemented by Governor Jack Markell in May 2016.  This initiative aims at implementing blockchain technology into the DGCL for the benefit of Delaware corporations.  The Vice Chancellor stated that Delaware wants corporations and their stockholders to take advantage of the blockchain technology, and ended his presentation by emphatically stating that everything is there for the stockholders, they just have to initiate this change in the system.

[1] See generally In re Appraisal of Dell Inc. (Dell Continuous Ownership), 2015 WL 4313206 (Del. Ch. July 30, 2015).
[2] He also states that increased SEC regulation can be a solution.  However, he acknowledges the time and resources that would require full reform makes this an unlikely solution.