DRAFT – FINAL VERSION FORTHCOMING IN
THE WAYNE LAW REVIEW 65 (1), pages 17-55
BLOCKCHAINS, CORPORATE GOVERNANCE, AND THE
JOAN MACLEOD HEMINWAY† & ADAM J. SULKOWSKI‡
I. BLOCKCHAIN TECHNOLOGY ................................................................ 18
II. CORPORATE GOVERNANCE ON BLOCKCHAINS .................................. 21
A. Shareholder Recordkeeping and Voting ...................................... 24
B. Insider Trading ............................................................................ 30
C. Disclosure-Related Considerations ............................................. 34
1. Monitoring ............................................................................. 35
2. Materiality ............................................................................. 37
a. Defining Materiality ........................................................ 38
b. Disclosing Material Facts ............................................... 40
c. Implications of Blockchain for Antifraud Disclosures .... 41
3. Mandatory Disclosure ........................................................... 45
III. IMPLICATIONS FOR LEGAL COUNSEL ................................................ 49
IV. CONCLUSION ..................................................................................... 54
Significant aspects of firm governance can (and likely will) be
conducted on blockchains in coming years.1 This transition has already
begun in some respects.2 The actions of early adopters illustrate that
moving governance to blockchains will require legal adaptations. These
adaptations are likely to be legislative, regulatory, and judicial. Firm
management, policy-makers, and judges will turn to legal counsel for
education and guidance.
This article describes blockchains and their potentially expansive use
in several aspects of the governance of publicly traded corporations and
outlines ways in which blockchain technology affects what business
lawyers should know and do—now and in the future.3 Specifically, this
article describes the nature of blockchain technology and ways in which
the adoption of that technology may impact shareholder recordkeeping
† Rick Rose Distinguished Professor of Law, The University of Tennessee College
of Law. A.B., 1982, Brown University; J.D., 1985, New York University School of Law.
‡ Associate Professor, Babson College. B.A., 1996, College of William & Mary;
M.B.A., 1999, Boston College, Carroll School of Management; J.D., 2000, Boston College
1. David Yermack, Corporate Governance and Blockchains, 21 REV. FIN. 7, 13–24
2. See id.
3. See infra Parts II & III.
18 WAYNE LAW REVIEW [Vol. 65:17
and voting, insider trading, and disclosure-related considerations.4 The
article then reflects on implications for business lawyers and the practice
of law in the context of corporate governance.5
I. BLOCKCHAIN TECHNOLOGY
We begin with a brief primer on the basics of blockchain technology.
While the concept of digitally time-stamping documents in sequence to
authenticate intellectual property surfaced in 1991,6 Satoshi Nakamoto—
a pseudonym for an unknown person or group of people—is commonly
credited with first articulating the functioning and structure of blockchain
in 2008.7 Blockchain initially was proposed as a method of validating
ownership of a virtual currency, bitcoin.8
Blockchain is, in essence, an electronic record-keeping technology. 9
Its key difference from previous forms of computer-based information
tracking is that records are distributed and verified across nodes in a
network, rather than established and authenticated at a single point of
control.10 It has been hyped as a qualitative leap forward in the advance of
information technology, on par with the revolutionary implications of
widespread Internet adoption.11 Alternatively, others have characterized it
as merely another incremental step forward over earlier innovations (since
the late 1970s) in encryption, peer-to-peer applications, consensus
mechanisms, and decentralized, distributed data storage.12 Regardless of
4. See infra Part II.
5. See infra Part III.
6. See Stuart Haber & W. Scott Stornetta, How to Time-Stamp a Digital Document, 3
J. CRYPTOLOGY 99 (1991).
7. Satoshi Nakamoto, Bitcoin: a peer-to-peer electronic cash system, BITCOIN (2008),
9. See generally Marco Iansiti & Karim R. Lakhani, The Truth About Blockchain, 95
HARV. BUS. REV. 118 (2017) (noting, among other things, that “blockchain is an open,
distributed ledger that can record transactions between two parties efficiently and in a
verifiable and permanent way.”).
10. Id. In layperson’s terms, blockchain-enabled recordkeeping has been analogized to
a giant shared spreadsheet in that multiple users can, in real-time, both see a perfect record
of changes that have been entered previously and update the document. See MELANIE
SWAN, BLOCKCHAIN: BLUEPRINT FOR A NEW ECONOMY xi (Tim McGovern et al eds., 1st
11. Laura Shin, How the Blockchain Will Transform Everything From Banking to
Government to our Identities, FORBES (May 26, 2016),
12. Aaron Wright & Primavera De Filippi, Decentralized Blockchain Technology and
the Rise of Lex Cryptographia 1, 4 (Mar. 12, 2015), https://ssrn.com/abstract=2580664.
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 19
the extent to which we see blockchain as a major technological advance,
and looking past the hype surrounding its application as the foundational
technology of cryptocurrencies,13 blockchain holds long-term and
significant potential to disrupt and improve business processes.14
These attributes of blockchain technology are founded in the initial
vision of blockchain articulated by Satoshi Nakamoto. Records are
validated and confirmed as accurate—inherently and constantly—by the
very structure and function of the technology. This description of
blockchain as an innately accurate data-tracking system is most credible
in reference to public blockchains (involving open-source access and
nodes independent of the permission or control of a central authority, as
we describe below).15
Benefits of blockchain-enabled information-tracking—especially in
the context of corporate governance—include transparency, immutability,
reliability, and greater efficiency.16 Early experiments with the technology
have suggested that it might help, for example, authenticate inventory in
the timber industry, a context where illegal sales are estimated at a total of
$51–52 billion globally.17 Other promising applications involve
discovering fraud and counterfeiting.18
A few cautionary notes merit mention. First, while blockchain may
create more immediately available and reliable records, it does not assure
that a record is free of fraud or error at the point of creation.19 Second, the
technology does not guarantee that records will be scrutinized or acted
upon, either by management, customers, or any other stakeholder.20 In
other words, the problem of third-person trust has arguably been solved
(blockchain is designed to assure that a record has not been manipulated
13. Joseph Young, Blockchain is Overhyped and Not Quite Applicable: VC Andrew
Parker, COINTELEGRAPH (Mar. 23, 2017), https://cointelegraph.com/news/blockchain-is-
14. See Iansiti & Lakhani, supra note 9.
15. See infra note 24 and accompanying text.
16. For a comprehensive discussion of the benefits, risks, and implications of
blockchain applications in the context of business supply chains and implications for
attorneys, see generally Adam J. Sulkowski, Blockchain, Business Supply Chains,
Sustainability, and Law: The Future of Governance, Legal Frameworks, and Lawyers?, 43
DEL. J. CORP. L. 303 (2019).
17. See Boris Düdder & Omri Ross, Timber Tracking: Reducing Complexity of Due
Diligence by Using Blockchain Technology 1, 3 (Aug. 8, 2017),
18. See Phil Taylor, EY partners with EZLab on Blockchain Wine Security Project,
SECURING INDUS. (Apr. 18, 2017), https://www.securingindustry.com/food-and-
19. Sulkowski, supra note 16, at 322–23.
20 WAYNE LAW REVIEW [Vol. 65:17
after creation), but there remain problems of second-person trust
(blockchain does not guarantee error-free or fraud-free record creation)
and first-person trust (blockchain does not assure that someone will pay
attention to the data and act appropriately based on the improved record-
keeping).21 Finally, there is the problem of faulty code, which may lead to
an application of the technology not functioning as intended, with
subsequent controversial fixes that may undermine trust in the platform.22
This was illustrated spectacularly in the so-called Ethereum hack, which
was technically not a hack, but rather a theft of cryptocurrency enabled by
faulty coding that failed to distinguish between legitimate transactions and
It is also necessary at the outset to differentiate between public and
private blockchains. Public blockchains—such as those that serve as the
foundation of crytpocurrencies—contain records that are visible to anyone
participating in the network; the data has no single central authority that
“owns” it.24 According to some, this is a fundamental and definitional key
feature of blockchain, and is the basis for blockchain records being more
trustworthy than any system where one entity controls either a central
database or the majority of nodes of a network.25 Private blockchain
records—permissioned ledgers—are accessible only to those granted
permission to join the network (most typically persons within an
Therefore, unsurprisingly, private blockchains are the approach for
extant applications for business enterprise transaction tracking.27
Arguably, because a permissioned ledger’s nodes are ultimately under the
control of a central entity, private blockchain arrangements do not
constitute a great improvement in terms of the credibility of the data. The
21. Id. at n.111.
22. See id. at 321–22.
23. Id. at 319–20.
24. Michèle Finck, Blockchains: Regulating the Unknown, 19 GERMAN L. J. 665, 670
25. See Shin, supra note 11.
26. See Finck, supra note 24, at 670; see also Alan Cohn et al., Smart After All:
Blockchain, Smart Contracts, Parametric Insurance, and Smart Energy Grids, 1 GEO. L.
TECH. REV. 273, 279 (2017) (describing private blockchains). Permissions to enter data and
read data may be differentiated in a private blockchain. See, e.g., Vitalik Buterin, On Public
and Private Blockchains, ETHEREUM BLOG (Aug. 7, 2015),
27. Todd Benzies, Tech and Banking Giants Ditch Bitcoin for Their Own Blockchain,
WIRED (Dec. 17, 2015), https://www.hyperledger.org/news/2015/12/17/wired-tech-and-
banking-giants-ditch-bitcoin-for-their-own-blockchain. Examples of business enterprise
applications to date include Hyperledger from Linux Foundation and Corda from the R3
financial services consortium. Id.
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 21
challenge of balancing the control offered by a permissioned ledger with
the transparency and credibility of a public ledger can be addressed in one
of several ways.28 One approach is to include a government regulatory
agency or ministry as a gatekeeper, so that access to a permissioned ledger
is not under the exclusive control of regulated entities.29 Examples include
the Securities Exchange in Sydney and the Depository Trust Clearing
Corp.30 Other refinements of the permissioned ledger approach include
Hyperledger and R3CEV.31 Nevertheless, the fundamental distinction
between public and permissioned ledgers—at least in the opinion of some
observers—should not be under-estimated, and it is vital to understanding
parts of the analysis provided in Part II.32
II. CORPORATE GOVERNANCE ON BLOCKCHAINS
Corporate governance—a commonly used legal and academic term of
art—can mean different things to different people in different contexts.33
On a broad level, corporate governance captures relations between and
among the three central internal corporate constituents: directors, officers,
and shareholders; sometimes even more broadly including debtholders or
others with contractual rights affecting corporate management and
control.34 The literature expanding on the use of this term to reference
relationships among internal constituents most commonly takes an us-
versus-them approach, highlighting tensions between the control rights of
28. See Yermack, supra note 1.
29. Id. at 10–12.
30. Id. at 12.
31. Id. at 16.
32. See infra Part II.
33. See, e.g., Robert C. Bird & Stephen Kim Park, Organic Corporate Governance, 59
B.C. L. REV. 21, 28 (2018) (“Corporate governance has been variously defined as a
structure for exerting power inside of a firm, constraints that shape bargaining over firm
quasi-rents, or a ‘system of rules . . . and processes’ that direct and control the enterprise.”);
Cheryl L. Wade, Effective Compliance with Antidiscrimination Law: Corporate
Personhood, Purpose and Social Responsibility, 74 WASH. & LEE L. REV. 1187, 1193
(2017) (“Definitions of Corporate Governance are . . . conceptually varied.”).
34. See ROBERT A.G. MONKS & NELL MINOW, CORPORATE GOVERNANCE 75 (2d ed.
2001) (defining corporate governance as “the relationship among various participants in
determining the direction and performance of corporations” and noting that participants
include both primary corporate constituents—shareholders, managers, and directors—as
well as “employees, customers, suppliers, creditors, and the community.”); Bird & Park,
supra note 33, at 28 (“[C]orporate governance is fundamentally concerned with ensuring
managers keep their promises through embedded relationships within the organization.”).
22 WAYNE LAW REVIEW [Vol. 65:17
management (most particularly the board of directors) and those of
However, corporate governance also refers to the legal structures and
processes through which those core constituents interact in managing,
controlling, and operating the business of the firm. 36 These structures and
processes are most typically expressed in state corporate law and federal
and state securities regulation.37 They are designed to define roles,
establish decision-making authority, and mediate conflict.38
In this article, we employ a capacious definition of corporate
governance—one that includes the full breadth of the relationships
between and among corporate constituents and the structures and
processes through which these constituents interact in the management,
control, and functional operation of the corporation. We are especially
concerned about the implications of blockchain technology for
shareholder recordkeeping and voting, insider trading, and disclosure.
These three areas of concern involve corporate governance and implicate
related regulatory structures.
In these and other areas of concern, corporate governance and its
regulatory framework remain dynamic and continue evolving; the public
policy considerations that drive the adoption and interpretation of
corporate governance rules are regularly revisited; and legal advisors
remain engaged in creative planning and drafting to serve clients for whom
the rules present challenges and opportunities.39 Legislatures, regulatory
35. See Lynne L. Dallas, Is There Hope for Change? The Evolution of Conceptions of
“Good” Corporate Governance, 54 SAN DIEGO L. REV. 491, 494 (2017) (referring to “the
use of the term ‘corporate governance’ that arose during the 1980s centering on the
relationship between managers and shareholders and focusing on managerial
36. See generally Frederick H. Alexander, Whose Portfolio Is It, Anyway?, 47 STETSON
L. REV. 311, 319 (2018) (“[C]orporate governance mechanisms give shareholders the
ability, through director elections, to decide who manages the company and to approve
certain critical transactions, such as mergers, amendments to governing documents, and
dissolution. Thus, when boards fail to act in ways that shareholders consider to be in their
best interests, they can be replaced.”); Stephen M. Bainbridge, Director Primacy: The
Means and Ends of Corporate Governance, 97 NW. U. L. REV. 547, 605 (2003) (averring
that corporate governance models identify “which corporate constituency possesses
ultimate decisionmaking power” and “whose interests prevail” when decisions pit the
interests of corporate constituents against each other); Brian R. Cheffins, Corporate
Governance and Countervailing Power, 74 BUS. LAW. 1 (2019) (“Corporate governance
can be defined as the checks and balances affecting those who run companies.”).
37. See sources cited supra note 36.
38. See sources cited supra note 36.
39. See e.g., Jingchen Zao, Promoting a More Efficient Corporate Governance Model
in Emerging Markets Through Corporate Law, 15 WASH. UNIV. GLOB. STUD. L. REV. 447
(2016); Dallas, supra note 35.
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 23
bodies, and courts regularly address the tensions between and among
various stakeholders and attempt to refine both the rules themselves and
their application in practice.40 Some commentators take the view,
however, that the incremental nature of these changes is insufficient for
the task of generating a coherent corporate governance framework and
advocate for a more comprehensive reworking of corporate governance:
an effective reboot of corporate governance—Corporate Governance
2.0—to address gaps, imbalances, and other deficiencies.41
At the same time, corporate governance has started to move to
blockchains. “Stock exchanges around the world have begun to
experiment with blockchains as a method for companies to list, trade, and
vote their shares, and stockholders may benefit from lower costs of
trading, faster transfers of ownership, more accurate records, and greater
transparency of the entire process.”42 Corporate governance seems like a
logical application for blockchain technology. Corporate information and
operations often comprise ordered transactional units that build on each
other.43 That type of recordkeeping is what blockchains, by their very
nature, promise to do well.44 Stockholder lists, stock transfer records,
accounts recording transactions in goods and services, and regulatory
40. Morey W. McDaniel, Stockholders and Stakeholders, 21 STETSON L. REV. 121, 126
(1991). Constituency statutes are a classic example of state legislatures and courts engaging
in this kind of refinement.
Constituency statutes . . . provide that directors “may consider the interests” of
other stakeholders . . . . [L]egislatures are instructing the courts to develop the
standards and define the scope of a director’s discretion with respect to
nonstockholders. Therefore, when courts interpret constituency statutes, they
are developing a common law of corporations that encompasses stakeholder
Id. Regulators may directly or indirectly influence stakeholder governance. See, e.g., id. at
148 (describing proposals to engage federal agencies in stakeholder analyses in the
takeover context); Lynne L. Dallas, Corporate Ethics in the Health Care Marketplace, 3
SEATTLE J. FOR SOC. JUST. 213, 224 (2004) (noting that regulators in and outside
government may foster “the development of stakeholder theory in corporation law.”).
41. See, e.g., Guhan Subramanian, Corporate Governance 2.0, HARV. BUS. REV. (Mar.
2015), https://hbr.org/2015/03/corporate-governance-2-0 (“I propose Corporate
Governance 2.0: not quite a clean-sheet redesign of the current system, but a back-to-basics
reconceptualization of what sound corporate governance means.”).
42. Yermack, supra note 1, at 28.
43. See David J. Berger et al., Tenure Voting and the U.S. Public Company, 72 BUS.
LAW. 295, 312 (2017).
44. See id. (describing a blockchain as “a shared ledger that records digital transactions
made over its peer-to-peer software network” and the recording and chronological ordering
of blocks); Yermack, supra note 1, at 7 (describing a blockchain as “a sequential database
of information that is secured by methods of cryptographic proof” that “offers an
alternative to classical financial ledgers.”).
24 WAYNE LAW REVIEW [Vol. 65:17
compliance reports all provide examples of corporate data and processes
that can be recorded on blockchains.45
We are interested in potential synergies between blockchain
technology and corporate governance. While blockchain technology may
enhance the efficiency and effectiveness of corporate governance in
certain identifiable ways, we question whether the transition from
corporate governance to blockchains will have more wide-ranging salutary
effects on the corporation and corporate constituents. Accordingly, we
explore in this part certain potential benefits and detriments of blockchain-
enabled corporate governance using three principal examples: shareholder
recordkeeping and voting, insider trading, and disclosure-related
A. Shareholder Recordkeeping and Voting
Shareholder records are critically important to both corporate finance
and corporate governance. 46 Typically, public companies retain the
services of stock transfer agents and registrars to keep track of
shareholders and to record transactions in the corporation’s stock.
“Corporations stand upon the footing of trustees, in relation to their
stockholders, for the protection of their interests. Being custodians of the
primary evidence of title to the stock, they are held to the exercise of
reasonable care and diligence in its preservation.”47
Investors will not purchase stock unless they know that they can
acquire title to it, they will not be able to sell stock they own unless they
can prove title to it, and stockholders themselves will not be entitled to the
ongoing financial rights of stock ownership—dividends and other
distributions—unless they have title to the stock that is recognized by the
corporation or by a court order compelling corporate recognition.48 The
corporation’s stock ledger is the definitive source of information on the
record ownership of shares of stock in the corporation. Legal title to stock
typically is recognized through record ownership evidenced in the stock
ledger and stock transfer records of a corporation, although other evidence
45. See generally Yermack, supra note 1.
46. See Peck v. Bank of Am., 19 A. 369, 370 (R.I. 1890); see also Hughes v. Drovers’
& Mechs.’ Nat. Bank, 38 A. 936, 937 (Md. 1897) (“Corporations are the custodians of
the evidence of title to their stock, and for that reason are held to the exercise of reasonable
care and diligence in its preservation.”).
47. Peck, 19 A. at 370.
48. See, e.g., Mikart, Inc. v. Marquez, 438 S.E.2d 633, 636 (Ga. Ct. App. 1993) (“It is
axiomatic that only record owners of stock are entitled to dividend payments.”).
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 25
of title (including the execution of a stock power in blank or in favor of a
new owner) also may be recognized.49
Corporate governance requires accurate and complete information
about shareholders and their holdings. Shareholder emoluments include
the right to inspect corporate books and records, the right to bring
derivative litigation, and (perhaps most importantly) the right to vote.50
Each of these important shareholder entitlements requires a determination
of the record ownership of stock at a particular time. As the definitive
registry of a corporation’s stock ownership, its stock ledger is the core (but
not exclusive) evidence used in making this important record ownership
Some may remember the days of hardcopy minute books with
handwritten or typewritten stockholder lists, stock transfer ledgers, and
physical stock certificates. For public companies, and many other
corporate firms, these records transitioned to electronic form years ago.
Given that stockholder ledgers and stock transfer records document
accounts and transactions (respectively), it is only logical that corporate
advisors and commentators would consider moving them and related
processes to blockchains.
More generally, the public issuance and trading of securities can be
documented and verified on blockchains, replacing securities trading and
clearance intermediaries with a self-executing stock registration and
transfer system.52 More specifically, the beneficial ownership (as well as
49. See, e.g., Robinson v. Bealle, 20 Ga. 275, 293 (1856) (“The best evidence of
the title to stock, it is said, consists in the stock certificate-book, the stock ledger and the
stock transfer book taken together.”); Willoughby v. Barrett, 60 Pa. Super. 242, 245 (1915)
(“The stock book constitutes the legal evidence of the legal title to stock.”); Fritsch v.
Buckman, 20 Pa. D. & C. 195, 199 (Com. Pl. 1933) (“The stock book constitutes the
legal evidence of the legal title to stock.”).
50. See, e.g., Megan Wischmeier Shaner, Confronting New Market Realities:
Implications for Stockholder Rights to Vote, Sell, and Sue, 70 OKLA. L. REV. 1, 2-4
(2017) (classifying these rights under three categories: the right to vote, sell, and sue); see
also Know Your Shareholder Rights, INVESTOPEDIA, (last visited May 30, 2019),
51. See, e.g., W. Air Lines, Inc. v. Kerkorian, 254 A.2d 240, 241–42 (Del. 1969)
[T]he Court of Chancery has the authority to go beyond the
record title of stock, and to take evidence upon the status of the person
demanding an inspection of the stock list. Under some circumstances,
the Chancellor may ignore the stock record title in proceedings
attacking the right of a record stockholder to vote his stock.
52. See Berger et al., supra note 43, at 312–13; see also Jeff John Roberts, Companies
Can Put Shareholders on a Blockchain Starting Today, FORTUNE (Aug. 1, 2017),
26 WAYNE LAW REVIEW [Vol. 65:17
record ownership) of corporate voting securities can be recorded in
blockchains, facilitating both the identification of securityholders
ultimately entitled to vote, or to direct a vote, at meetings or by written
consent in lieu of meetings and proxy access for shareholders desiring to
propose candidates for election to the corporation’s board of directors.53
“For a company with shares listed on a public blockchain, all shareholders
and other interested parties would be able to view the arrangement of
ownership at any time and identify changes instantly as they occurred.”54
However, the precise identity of each holder may not be easy to discern
unless the coding allows identification.55 At a U.S. Securities and
Exchange Commission (SEC) roundtable convened in November 2018,
blockchain proxy voting was mentioned, and a study was suggested.56
Benefits of a shareholder tracking and voting system executed on a
blockchain may include reduced costs (associated with, among other
things, automatic self-verification, increased efficiency, and the potential
elimination of intermediaries),57 the automatic generation of an accurate
53. See U.S. SEC. & EXCH. COMM’N, ROUNDTABLE ON THE PROXY PROCESS 97 (2018),
https://www.sec.gov/files/proxy-round-table-transcript-111518.pdf (“Many experts say
it’s possible, or will be possible soon, to develop a technology-based proxy system that
enables proxy materials to be distributed instantaneously to all eligible shareholders, and
for votes to be counted quickly, accurately, reliably, fairly, and confidentially.”); Berger et
al., supra note 43, at 315; Peter Feltman, Blockchain Technology Comes to Annual
Meetings, CQ ROLL CALL, 2017 WL 2060043 (May 15, 2017) (“Blockchain technology . .
. provides a secure way to tally votes electronically.”); Chris Marquette, Proxy Voting via
Blockchain Floated to Correct Errors, CQ ROLL CALL, 2018 WL 4356377 (Sept. 13,
2018) (“Experts on U.S. proxy voting say blockchain . . . could ensure votes are properly
cast, counted on time and participation is maximized.”).
54. Yermack, supra note 1, at 17.
55. Id. at 18 (noting that “assets on blockchains are typically held in anonymous ‘digital
wallets’ identified only by complex labels akin to serial numbers.”).
56. See U.S. SEC. & EXCH. COMM’N, supra note 53, at 22–23, 62, 92, 97–106, 109–10;
see also FED. SEC. L. REP. ¶ 6433804 (“Several roundtable participants expressed support
for using blockchain or other distributed ledger technology to reform the proxy voting
57. See Berger et al., supra note 43, at 314 (quoting from the Overstock.com, Inc.
prospectus); id. at 315 (“[T]he blockchain treats all shares alike and bears virtually
all costs.”); Donald Pierce, Protecting the Voice of Retail Investors: Implementation of a
Blockchain Proxy Voting Platform, 14 RUTGERS BUS. L. REV. 1, 21–22 (2019) (“Some see
blockchain technology as an immensely disruptive force that will eliminate the middleman
in our current proxy system . . . In the alternative, [b]lockchain may be gradually integrated
within the structure of the current financial service industry as intermediaries apply
blockchain to enhance their current platforms.”); Wright & De Filippi, supra note 1212, at
8 (“By combining digital currencies, smart contracts, and distributed data storage, the
blockchain further is ushering in entirely new decentralized organizations (including
decentralized autonomous organizations) that use source code to define an organization’s
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 27
and complete list of shareholders entitled to vote,58 the ability to ensure
that each of those shareholders receives proxy materials relevant to the
meeting,59 and the accurate counting and recording of votes in a timely
manner.60 These benefits address aspects of voting processes that have
been criticized in the past.61 At the outset of the SEC’s 2018 roundtable
on the proxy process, SEC Commissioner Kara Stein described the current
proxy system as “arcane at best.”62 Among other things, improvements to
the process may encourage greater participation by shareholders in
The execution of public company shareholder voting on a blockchain
brings challenges as well as benefits. Drawbacks of a blockchain proxy
voting system may include a loss of privacy for shareholders, given that
voter identities would not be strictly confidential in a public blockchain.64
For issuers, the open-source nature of a public blockchain for shareholder
voting may present related concerns—such as the capacity of shareholders
to exercise greater management control.
58. See Pierce, supra note 57, at 29 (“By publishing ownership records to the
blockchain, this step would enable the timely and accurate determination of vote
entitlement.”); Wright & De Filippi, supra note 12, at 8 (noting that blockchain technology
is being used to create “fraud-resistant digital voting platforms”).
59. See J. Travis Laster & Marcel T. Rosner, Distributed Stock Ledgers and Delaware
Law, 73 BUS. LAW. 319, 332 (2018) (“[B]lockchain-based distributions might replace the
physical mailing of a proxy statement, saving issuers and stockholders money in the
60. See Pierce, supra note 57, at 29 (“Once voting begins, blockchain’s transparent
nature would facilitate instantaneous and redundant vote tabulations. This accuracy will
provide vote finality.”); Wright & De Filippi, supra note 12, at 13–14 (“Voters could verify
that their own votes were counted, and—due to encryption—any blockchain-based voting
system would be resistant to hacking.”); Yermack, supra note 1, at 23 (“The benefits of
blockchain elections would include faster, more precise vote tabulation, and equal real-
time transparency of the likely voting outcome for both management and dissident
61. See, e.g., Yermack, supra note 1, at 23 (“Many studies . . . have documented the
current problems with corporate elections, which include inexact voter lists, incomplete
distribution of ballots, and sometimes chaotic vote tabulation.”).
62. Kara M. Stein, Commissioner of U.S. Sec. & Exch. Comm’n, Opening Remarks at
the 2018 SEC Staff Roundtable on the Proxy Process, U.S. SEC. & EXCH. COMM’N (Nov.
15, 2018), https://www.sec.gov/news/public-statement/stein-remarks-2018-roundtable-
63. See Yermack, supra note 1, at 23 (“[T]he greater speed, transparency, and accuracy
of blockchain voting could motivate shareholders to participate more directly in corporate
governance and demand votes on more topics and with greater frequency.” (footnote
64. See id. at 23 (“Due to the transparency of blockchains, ensuring the anonymity of
voters would be an obvious problem”).
28 WAYNE LAW REVIEW [Vol. 65:17
Through the deployment of new and innovative
blockchain-based applications, shareholders may take a
greater role in the management of their organizations,
with innovations such as nearly instantaneous voting
mechanisms . . . . In a world of decentralized autonomous
consensus, collective decision-making could take on
more prominence, resulting in the rapid reformulation of
corporate structures and the more efficient allocation of
The broad-based implementation of a transparent, distributed
shareholder voting system using blockchain technology could be a
corporate governance game-changer.66 Shareholders may be more
engaged and share enhanced decision-making trust.67 The integrity of
shareholder voting—including in director elections—should be greater.68
Unsurprisingly (given its status as the organizational home of most
publicly traded firms in the United States), Delaware has been an early
mover in facilitating the use of blockchain technology in maintaining
65. Wright & De Filippi, supra note 12, at 36.
The ease of shareholder voting could make corporations more dynamic.
Restrictions on shareholder proposals could be lessened, as shareholders could
submit any proposal they want and only proposals that have garnered a
sufficient number of votes from other shareholder (on a percentage basis)
would be presented to a board of directors. By lessening the noise,
shareholders’ voices could be actually heard and legitimate shareholder
Id. at 37; Yermack, supra note 1, at 23 (“[T]he greater speed, transparency, and accuracy
of blockchain voting could motivate shareholders to participate more directly in corporate
governance and demand votes on more topics and with greater frequency.” (footnote
66. See Wright & De Filippi, supra note 12, at 37 (“By lessening the noise,
shareholders’ voices could be actually heard and legitimate shareholder concerns
67. See id. at 16 (“By facilitating coordination and trust, a blockchain enables new
forms of collective action that have the potential to bypass existing governance failures. . .
. Trust does not rest with the organization, but rather within the security and auditability of
the underlying code, whose operations can be scrutinized by millions of eyes.”).
68. See Pierce, supra note 57, at 10 (“[B]lockchain has the potential to bring integrity
to the proxy process” and “if blockchain can solidify the integrity of the shareholder voting
process it will also solidify the legitimacy of director control.”).
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 29
shareholder records.69 Legislators in Delaware paved the way.70
Specifically, in 2017, the Delaware General Assembly enacted legislation
expressly permitting the use of blockchains for the maintenance of
shareholder lists.71 In relevant part, under the General Corporation Law of
the State of Delaware (DGCL):
“stock ledger” means 1 or more records administered by or on
behalf of the corporation in which the names of all of the
corporation’s stockholders of record, the address and number of
shares registered in the name of each such stockholder, and all
issuances and transfers of stock of the corporation are recorded in
accordance with § 224 of this title.72
DGCL Section 224 then provides (in relevant part) that:
Any records administered by or on behalf of the corporation in the
regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or by means of, or be
in the form of, any information storage device, method, or 1 or
more electronic networks or databases (including 1 or more
distributed electronic networks or databases), provided that the
records so kept can be converted into clearly legible paper form
within a reasonable time, and, with respect to the stock ledger, that
the records so kept (i) can be used to prepare the list of
stockholders specified in §§ 219 and 220 of this title, (ii) record
the information specified in §§ 156, 159, 217(a) and 218 of this
title, and (iii) record transfers of stock as governed by Article 8 of
subtitle I of Title 6.73
It bears mention that “Delaware is also in the process of creating a system
intended to let companies do everything from file incorporation
69. See Lucas Mearian, Delaware to Test Blockchain-Based Business Filing System,
COMPUTERWORLD (July 12, 2018),
blockchain-based-business-filing-system.html (noting that “Delaware will . . . test a new
distributed stock ledger, which will . . . update in real time.”).
70. See, e.g., Jeff John Roberts, Why Delaware Made it Easier for Businesses to Use
Blockchain, FORTUNE (Aug. 22, 2017), http://fortune.com/2017/08/22/fortune-500-
blockchain-ledger-delaware/ (“As of Aug. 1, a new law permits companies in Delaware—
where more than two-thirds of Fortune 500 companies are incorporated—to keep their list
of shareholders on a blockchain.”).
71. See id.
72. DEL. CODE ANN. tit. 8, § 219(c) (West 2019).
73. Id. § 224.
30 WAYNE LAW REVIEW [Vol. 65:17
documents to register shares via a blockchain.”74 While Delaware initially
pursued these initiatives on a fast track, it has assumed a more considered
pace in facilitating blockchain corporate records and processes in the past
eighteen months or so.75
Blockchain stock transfers and voting technology currently exist and
are likely to become more popular.76 As has been widely reported,
Overstock.com, Inc. (Overstock) has issued digital shares on a
Overstock’s blockchain system gives the issuer and its
transfer agent near real-time data as to the record holders
of its digital securities;, enabling the issuer or its transfer
agent to mail proxies, pay distributions, and take other
actions with respect to its record holders as required by
the applicable securities and corporate laws.78
It seems that it is only a matter of time before other firms adopt blockchain
to enable stock offerings, transfers, and other aspects of shareholder
governance. Business lawyers are well-advised to become familiar with
the attributes of public and private blockchains as they relate to the
maintenance of shareholder records and shareholder voting mechanics.
B. Insider Trading
Although some may not think of insider trading as a corporate
governance concern, market participants and observers are attentive to
sales and purchases made by corporate insiders—especially directors and
officers—because of the effects those trades may have on existing
shareholders and others involved in securities trading markets.79 The strain
74. Roberts, supra note 70.
75. See Kari Baker, Delaware Eases off Early Blockchain Zeal After Concerns Over
Disruption to Business, DEL. ONLINE
(Feb. 1, 2018), https://www.delawareonline.com/story/news/2018/02/02/delaware-eases-
76. See Berger et al., supra note 43, at 313.
78. Reade Ryan & Mayme Donohue, Securities on Blockchain, 73 BUS. LAW. 85, 98
79. An academic commentator recently summarized these effects as a matter of
The economic analysis of insider trading to date has revolved around two
principle [sic] theoretical frameworks: market effects, and
agency. The market effects critique considers primarily
the effect of insider trading on market efficiency and liquidity. The inside
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 31
on management-shareholder relations can be as troublesome here as it is
in shareholder voting and other corporate governance matters.80 U.S.
federal securities law, therefore, has been interpreted to regulate the use of
material nonpublic information by corporate insiders for their personal
Classic insider trading doctrine, in fact, focuses attention directly on
management-shareholder relations.82 Federal securities law primarily
governs insider trading as a matter of securities fraud.83 The primary
statutory and regulatory provisions are few. They include Section 10(b) of
the Securities Exchange Act of 1934, as amended (1934 Act),84 and Rules
10b-5,85 10b5-1,86 and 10b5-287 as adopted by the SEC under Section
10(b) of the 1934 Act. The applicable legal doctrine relies on
interpretations of Section 10(b) and these rules as reflected in decades of
trader is treated as a sort of informed-trader-on-steroids, whose information is
cheaper, more timely, more accurate, and perhaps less subject to competition
than outside information traders. The agency critique focuses on the manager’s
flawed relationship with the firm, asking the question: what might a disloyal
manager do in order to maximize her insider trading profits?
James C. Spindler, The Coasian Firm and Insider Trading, Revisited, 71 SMU L. REV. 967,
968–69 (2018) (footnotes omitted).
80. See, e.g., Marleen A. O’Connor, Toward A More Efficient Deterrence of Insider
Trading: The Repeal of Section 16(b), 58 FORDHAM L. REV. 309, 315–16 (1989) (footnotes
omitted) (“[I]nsider trading harms corporations by impairing the
agency relationship between management insiders and their corporations.”).
81. See e.g., S.E.C. v. Texas Gulf Sulphur, Co., 401 F.2d 833 (2d Cir. 1968), cert.
denied, 404 U.S. 1005 (1971); Cady, Roberts & Co., 40 S.E.C. 907, Exchange Act Release
No. 34-6668, 1961 WL 60638 (Nov. 8, 1961).
82. The classic (or classical) theory of insider trading relates to cases in which a
“corporate insider trades in his own corporation’s stock on the basis of material, nonpublic
information belonging to his corporation.” Zachary J. Gubler, A Unified Theory of Insider
Trading Law, 105 GEO. L.J. 1225, 1227 (2017); see also Geraldine Szott Moohr, An Enron
Lesson: The Modest Role of Criminal Law in Preventing Corporate Crime, 55 FLA. L. REV.
937, 947 (2003) (“Classic insider trading occurs when an insider, such as an executive of
the company, uses information that is not available to the public to buy or sell a security of
83. See, e.g., Richard A. Booth, The Missing Link Between Insider Trading and
Securities Fraud, 2 J. BUS. & TECH. L. 185, 187 (2007) (“[I]nsider trading is a form
of securities fraud”); Donna M. Nagy, Beyond Dirks: Gratuitous Tipping and Insider
Trading, 42 J. CORP. L. 1, 8 (2016) (referring to insider trading as “a species
of securities fraud”); J. Kelly Strader, (Re)conceptualizing Insider Trading: United States
v. Newman and the Intent to Defraud, 80 BROOK. L. REV. 1419, 1422 (2015) (citing U.S.
v. Newman, 773 F.3d 438 (2d Cir. 2014), reh’g en banc denied, 2015 WL 1954058 (2d
Cir. Apr. 3, 2015)) (“[I]nsider trading is a form of securities fraud that is primarily
judicially-defined . . . .”).
84. 15 U.S.C. § 78j(b) (2018).
85. 17 C.F.R. § 240.10b-5 (2018).
86. Id. § 240.10b5-1.
87. Id. § 240.10b5-2.
32 WAYNE LAW REVIEW [Vol. 65:17
judicial decisions. Liability under the classical theory of this fraud-based
regime requires the breach of a duty of trust and confidence—in the case
of corporate management, the fiduciary duty of directors and officers to
the corporation they serve, a fiduciary duty that often (but not always)
inures to the primary benefit of the corporation’s shareholders.88 The net
effect under federal securities law is that corporate directors and officers
in possession of material, nonpublic information must disclose that
information or abstain from trading.89
Stock transfers recorded on a public blockchain, like votes recorded
on a public blockchain, may be harder to conceal than transfers recorded
on current electronic ledgers, if trades can be traced to individual
88. See, e.g., eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1, 34 (Del. Ch. 2010)
(stating that “acting to promote the value of the corporation for the benefit of its
stockholders” is a standard applicable to directors under Delaware corporate law); Kelli A.
Alces, Debunking the Corporate Fiduciary Myth, 35 J. CORP. L. 239, 246 (2009)
(“[S]cholars and courts alike have moved toward an understanding of corporate fiduciary
duties which dictates that fiduciary duties are owed to the corporation as a whole and that
the interests or preferences of one constituency should not be honored above others.”);
Stephen M. Bainbridge, Director Primacy: The Means and Ends of Corporate
Governance, 97 NW. U. L. REV. 547, 592 (2003) (“[T]he fiduciary duties of corporate
directors should extend only to shareholders.”); Leo E. Strine, Jr., Our Continuing Struggle
with the Idea that For–Profit Corporations Seek Profit, 47 WAKE FOREST L. REV. 135, 147
n.34 (2012) (“[S]tockholders’ best interest must always, within legal limits, be the end.
Other constituencies may be considered only instrumentally to advance that end.”); see
generally S.E.C. v. Texas Gulf Sulphur, Co., 401 F.2d 833, 848 (2d Cir. 1968), cert. denied,
404 U.S. 1005 (1971) (“[A]nyone who, trading for his own account in the securities of a
corporation has ‘access, directly or indirectly, to information intended to be available only
for a corporate purpose and not for the personal benefit of anyone’ may not take ‘advantage
of such information knowing it is unavailable to those with whom he is dealing,’ i.e., the
investing public.” (quoting Cady, Roberts & Co., 40 S.E.C. 907, 912 (1961))).
89. See Chiarella v. United States, 445 U.S. 222, 226–30 (1980).
[A]dministrative and judicial interpretations have established that silence in
connection with the purchase or sale of securities may operate as a fraud
actionable under 10(b) despite the absence of statutory language or legislative
history specifically addressing the legality of nondisclosure. But such liability
is premised upon a duty to disclose arising from a relationship of trust and
confidence between parties to a transaction. Application of a duty to disclose
prior to trading guarantees that corporate insiders, who have an obligation to
place the shareholder’s welfare before their own, will not benefit personally
through fraudulent use of material, nonpublic information.”). Based on the
same legal principles, insiders also are prohibited from sharing material
nonpublic information with others who may use it to trade. See Dirks v. SEC,
463 U.S. 646, 659 (1983) (“Not only are insiders forbidden by their fiduciary
relationship from personally using undisclosed corporate information to their
advantage, but they may not give such information to an outsider for the same
improper purpose of exploiting the information for their personal gain.”
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 33
insiders.90 “For a company with shares listed on such a blockchain, all
shareholders and other interested parties would be able to view the
arrangement of ownership at any time and identify changes instantly as
they occurred.”91 As a result, blockchain-based stock transfer records may
deter trading by knowing or reckless wrongdoers.92 Concealment would
be easier if stock transfers were instead recorded on a private blockchain.
“Even under the private or permissioned blockchain models, the real-time
archive of transactions would create much more current and complete
information about each firm’s ownership than is available in stock markets
today, and it would be visible to at least some observers.”93
Government access to a blockchain on which trades are recorded may
deter unlawful or questionable trading by management, or may better
enable enforcement of insider trading prohibitions against insiders who
trade or tip while in possession of material nonpublic information.94 To
the extent that abnormal financial returns accruing to corporate directors
or officers may have been considered part of management’s compensation,
a deterrence of stock trading engendered by the transfer of stock ledgers
to a blockchain may result in decreased compensation to insiders.95
Moreover, when it comes to enforcement, the U.S. government has
shown a willingness to use a variety of techniques to monitor questionable
activity relating to possible insider trading violations.96 Attempts to hide
the identity of traders in government investigations of blockchain activity
have, to date, been somewhat successful.97 The government’s enforcement
activity in the insider trading case brought against Raj P. Rajaratnam
established, among other things, that it could be motivated to go to
significant lengths to obtain evidence in pursuing possible unlawful
90. See Yermack, supra note 1, at 17.
92. See id. (“[M]anagers might wish to conceal their trades for exactly the same reasons
that small shareholders or fund managers might wish to observe them.”).
94. See id. at 17 (“If the ledger of transactions were visible only to the blockchain
sponsor and to the government, the impact on investors’ trading strategies and insiders’
incentives could still be profound.”).
95. See id. at 21 (“The net effect would likely cut into managers’ profits from legal
insider trading, and firms might have to pay them more to offset this loss.”).
96. See, e.g., Kenneth Herzinger & Mark Mermelstein, On Tap The Government’s Use
of Wiretaps in Insider Trading Prosecutions Shows a Willingness to Use Nontraditional
Methods of Investigation, 35-APR LA LAW. 30 (Apr. 2012) (describing modern tactics
employed by the Federal Bureau of Investigation, the SEC, and the U.S. Department of
Justice in insider trading and other white-collar crime enforcement).
97. See Yermack, supra note 1, at 18 (“On the Bitcoin blockchain, maintaining
anonymity has at times proven difficult. Law enforcement officials have successfully
identified and prosecuted money launderers, drug dealers, operators of virtual casinos and
Ponzi schemes, and other miscreants.”).
34 WAYNE LAW REVIEW [Vol. 65:17
insider trading.98 The prospect of blockchain stock trading makes it
desirable for legal counsel advising both issuers and corporate
management to become familiar with the nature and extent to which
trading transactions can be identified and traced on various types of
Existing securities transactional reporting mechanisms applicable to
insiders—including those compelled by Rule 144 under the Securities Act
of 1933, as amended (1933 Act),99 Section 16(a) of the 1934 Act,100 and
Rule 13d-1 under the 1934 Act101—would likely be reconsidered. These
transactional reports help identify suspicious management stock trades.102
“Such notices to the market . . . might become superfluous if these
investors’ positions could be observed in real time.”103 Lawyers advising
clients in this area will be challenged to keep up with legal developments
in reporting responsibilities applicable to corporate management, as well
as with the nuances of insider trading regulation if blockchain technology
becomes a widely accepted means for recording management stock trades
or attendant information.
C. Disclosure-Related Considerations
The legal framework applicable to publicly traded corporations
engages both state corporate law establishing (among other things)
fiduciary duties and federal securities law requiring (among other things)
the disclosure of information.104 This section proceeds by first briefly
98. John C. Hueston, New Developments in Insider Trading Investigations and
How to Respond, MANAGING WHITE COLLAR LEGAL ISSUES, 2012 WL 167211, *2 (2012);
see also Peter J. Henning, Rajaratnam’s Uphill Fight to Suppress Wiretaps, N.Y. TIMES
DEALBOOK (May 10, 2010), https://dealbook.nytimes.com/2010/05/10/an-uphill-fight-to-
99. 17 C.F.R. § 230.144(h) (2018).
100. 15 U.S.C. § 78p(a) (2018).
101. 17 C.F.R. §§ 240.13d-101–102 (2018).
102. See, e.g., Allan Horwich, The Origin, Application, Validity, and Potential Misuse
of Rule 10b5-1, 62 BUS. LAW. 913, 954 (2007) (noting the connection between insider
trading and executive and director stock reporting under Rule 144 and Section 16(a)); Ellen
Taylor, Teaching an Old Law New Tricks: Rethinking Section 16, 39 ARIZ. L. REV. 1315,
1334–35 (1997) (identifying Schedule 13D as a form on which insiders may be required to
publicly report trades, but noting that “section 13(d) does not require officers and directors
who are not 5% holders to file reports of their trades, so it does not provide the publicity
with respect to those trades that section 16 does.”).
103. See Yermack, supra note 1, at 18.
104. See, e.g., Robert T. Esposito, Charitable Solicitation Acts: Maslow’s Hammer for
Regulating Social Enterprise, 11 N.Y.U. J.L. & BUS. 463, 483 (2015) (explaining that for-
profit corporations are regulated under state corporate law and federal securities law and
that the “regulatory regime revolves around the fiduciary duties
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 35
examining how blockchain-based recordkeeping could facilitate the
board’s fulfillment of fiduciary duties under state corporate law by
enabling more efficient and reliable monitoring of the organization. Next,
this section examines how blockchain could enable more rapid and
credible disclosures, which may impact materiality analyses under federal
securities law and rules. Finally, this section concludes by considering the
saliency of blockchain to broader issues in the context of mandatory and
voluntary disclosures under the federal securities laws.
Boards of directors have duties of care and loyalty.105 In a series of
judicial opinions, Delaware courts have articulated how a component of
the duty of loyalty—the obligation to act in good faith—applies in the
compliance context.106 The relevant opinions explain that, in accordance
with this duty of good faith, directors are obligated to monitor operations
to assure compliance.107 Boards have an evolving duty to, for example,
and disclosure requirements regarding the financial aspects of the business . . . .”);
Christopher Gulinello, The Mandatory Disclosure of State Corporate Law, 86 NEB. L. REV.
795, 796 (2008) (“In the United States, the relationship between investors and the managers
of public companies is governed by a combination of state and federal law.”).
105. See, e.g., Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362, 370 (Del.
2006) (clarifying that the only two fiduciary duties under Delaware corporate law are the
duties of care and loyalty and describing the duty of loyalty in a corporate compliance
context); Smith v. Van Gorkom, 488 A.2d 858, 872–73 (Del. 1985) (“[A] director’s duty
to exercise an informed business judgment is in the nature of a duty of care, as
distinguished from a duty of loyalty.”), overruled on different grounds by Gantler v.
Stephens, 965 A.2d 695 (Del. 2009).
106. See, e.g., Stone, 911 A.2d at 369–70 (“The failure to act in good faith may result in
liability because the requirement to act in good faith ‘is a subsidiary element[,]’ i.e., a
condition, ‘of the fundamental duty of loyalty.’ It follows that because a showing of bad
faith conduct . . . is essential to establish director oversight liability, the fiduciary duty
violated by that conduct is the duty of loyalty.”); see also In re Caremark International Inc.
Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996) Graham v. Allis-Chalmers
Manufacturing Co., 188 A.2d 125 (Del. 1963).
107. See, e.g., id. at 370 (articulating “the necessary conditions predicate for director
oversight liability,” including the conscious failure to monitor or oversee corporate
operations); In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 968–70 (Del. Ch.
1996) (describing director liability for a failure to monitor); Graham v. Allis-Chalmers
Mfg. Co., 188 A.2d 125, 130 (Se. Ch. 1963) (“[T]he question of whether a corporate
director has become liable for losses to the corporation through neglect of duty is
determined by the circumstances. If he . . . has refused or neglected cavalierly to perform
his duty as a director, or has ignored either willfully or through inattention obvious danger
signs of employee wrongdoing, the law will cast the burden of liability upon him.”). For
an articulation of the critique that private shareholder litigation is inadequate as a means of
assuring adequate board oversight, and a proposal for a public sector mechanism, see Renee
36 WAYNE LAW REVIEW [Vol. 65:17
monitor operations so as to detect and address illegal schemes carried out
by company employees.108
Especially for large organizations, therefore, blockchain applications
offer a tremendous potential benefit to directors because of the capacity of
blockchains to assist the directors in fulfilling their duty to monitor and
detect fraud, theft, or any other malfeasance by officers, employees, or
anyone else in the supply chain.109 Specifically, capturing compliance-
related information and transactions on blockchains may make it harder
for bad actors to hide their activities. Both public and private blockchains
have this potential.
There are, however, two cautionary notes that bear emphasizing in this
and other contexts in which blockchain is relied upon for disclosure. First,
as noted in Part I, blockchain-enabled recordkeeping is only as reliable as
the initial creation or entry of data.110 This places a premium on audits or
independent verification to assure that record creation and certifications
are accurate and complete—in other words, that all information written
onto the blockchain is free of misrepresentations and that all information
needed to prevent disclosed information from being misleading has been
disclosed. In short, the adoption of blockchain-based information storage
shifts the attention in fraud identification away from recordkeeping to
record-creation. Legal counsel needs to be aware of this shift, including,
for example, when proffering advice in the context of compliance
processes. Second, as also noted in Part I, blockchain-enabled
recordkeeping is only as meaningful as the attentiveness of officers and
directors to the data and anomalies and the ability and the will of these
managers to take investigative and corrective action if needed and as
warranted.111 As summarized further below, this second cautionary note
heightens the value of attorney awareness and astuteness with regard to
the operations of their organizational clients.
Assuming that a corporation controls access to all the nodes of a
private blockchain, it is worth noting that, in this context as in the others
previously discussed, a permissioned distributed ledger (i.e., a private
blockchain) does not add to the credibility of information to the same
degree as a pubic blockchain, at least to skeptical outside observers or
others who do not have trust in the controlling corporation. If all nodes are
M. Jones & Michelle Welsh, Toward a Public Enforcement Model for Directors’ Duty of
Oversight, 45 VAND. J. TRANSNAT’L L. 343 (2012).
108. See sources cited supra note 107; see also Jennifer Arlen, The Story of Allis-
Chalmers, Caremark, and Stone: Directors’ Evolving Duty to Monitor, CORP. L. STORIES
323, 324–25, 329–31 (J. Mark Ramseyer ed., 2009).
109. See supra Part I.
110. See supra note 16 and accompanying text.
111. See supra note 16 and accompanying text.
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 37
under the control of a firm’s management, then they have the ability to
control those records—and theoretically could alter them. The system
could be made more credible if independent accountants, or other
trustworthy third parties, controlled any of the nodes; or if a regulatory
agency controlled at least one node, as has been employed in at least one
context so far.112
Beyond the potential of blockchain to fundamentally alter the
availability of actionable information to corporate leadership, it also could
have profound implications for what and when publicly traded
corporations are obligated to disclose to investors and others. Public
companies have disclosure obligations under both antifraud and
mandatory disclosure provisions of federal securities laws.113 This
subsection focuses on antifraud compliance in connection with offers,
sales, and purchases of securities, which typically relies more centrally on
materiality determinations when there is an underlying duty to disclose
information. Subsection C.3 raises a broader set of blockchain-related
considerations relevant to a public company’s mandatory disclosure
compliance and the practice of voluntary disclosures.
112. R3 Unlocks Regulatory Reporting on Corda with Financial Conduct Authority and
Two Global Banks, R3 (Sept. 12, 2017), https://www.r3.com/news/r3-unlocks-regulatory-
113. As one of us offered in a prior work,
The 1933 Act and the 1934 Act principally exist to protect investors in, and to
promote and sustain the integrity of, the U.S. securities markets. The chief means
used by and under these laws to achieve their core policy objectives is the
public disclosure of investor-relevant information.
This public disclosure is compelled by mandatory disclosure provisions and
antifraud rules contained in the statutes, in regulations of the Securities and
Exchange Commission (“SEC”), and in federal judicial decisions.
Joan MacLeod Heminway, Personal Facts About Executive Officers: A Proposal for
Tailored Disclosures to Encourage Reasonable Investor Behavior, 42 WAKE FOREST L.
REV. 749, 752 (2007) (footnotes omitted).
Miriam R. Albert explains,
[J]udicial decisions take into account, to varying degrees, the underlying
legislative purposes of the federal securities laws to provide investor protection
through mandatory disclosure of the information investors need to make
informed investment decisions and, through antifraud liability, to put some
teeth into the mandatory disclosure requirements by imposing significant
penalties for violations thereof. (footnotes omitted).
Miriam R. Albert, The Howey Test Turns 64: Are the Courts Grading This Test on A
Curve?, 2 WM. & MARY BUS. L. REV. 1, 6–7 (2011).
38 WAYNE LAW REVIEW [Vol. 65:17
a. Defining Materiality
Several federal statutes govern securities transactions,114 with the
1933 Act and 1934 Act providing the foundation for the federal regime of
required disclosures by entities that desire to offer or sell securities to the
public or that issue publicly tradable securities.115 Key contextual
definitions of securities fraud and information that must be made public
are found in judicial opinions under Section 17(a) of the 1933 Act116 and
Section 10(b) of and Rule 10b-5 under the 1934 Act.117 Case law
addressing the application of Section 32(a) of the 1934 Act118 provides
additional context with respect to criminal securities fraud actions. In both
the civil and criminal securities fraud liability contexts, materiality can be
a significant enforcement and liability touchstone.119
Materiality has been described as having “an unrivaled position in the
center of all of securities law.”120 Deciding what information must be
disclosed to comply with antifraud principles when there is a duty to
114. For a comprehensive overview of the federal framework of securities regulation,
see Brian Lewis et al., Thirtieth Annual Survey of White Collar Crime, 52 AM. CRIM. L.
REV. 1567 (2015) (discussing regulation and registration of those in the business of
advising others on securities investments); Dodd-Frank Wall Street Reform and Consumer
Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) (codified in U.S.C. §§ 7, 12,
15, 18, 22, 31, 42). Previously, an additional federal statute, the Public Utility Holding
Company Act of 1935, 15 U.S.C. §§ 79–79z-6, governed securities transactions. The Act
was repealed by the Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005).
115. See 15 U.S.C. § 78b (2018) (explaining that the purpose of mandatory reporting of
information is to “insure the maintenance of fair and honest markets”).
116. 15 U.S.C. § 77q(a) (2018).
117. 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5 (2019).
118. 15 U.S.C. § 78ff(a).
119. See, e.g., Basic Inc. v. Levinson, 485 U.S. 224, 231–32 (1988) (applying, under
Rule 10b-5, the materiality formulations recognized by the Court in TSC Indus., Inc. v.
Northway, Inc., 426 U.S. 438, 449 (1976)); Chiarella v. United States, 445 U.S. 222, 230
(1980) (noting, in the insider trading context, that the “[a]pplication of a duty to disclose
prior to trading guarantees that corporate insiders, who have an obligation to place the
shareholder’s welfare before their own, will not benefit personally through fraudulent use
of material, nonpublic information.”). As one of us has noted in an earlier work, materiality
may be especially significant in insider trading actions brought under Section 10(b) and
Rule 10b-5 of the 1934 Act. See Joan MacLeod Heminway, Just Do It! Specific
Rulemaking on Materiality Guidance in Insider Trading, 72 LA. L. REV. 999, 1010 (2012)
(“The open-textured disclosure environment of insider trading in which materiality
operates is of particular concern when it mixes with enforcement discretion.”); Joan
MacLeod Heminway, Materiality Guidance in the Context of Insider Trading: A Call for
Action, 52 AM. U. L. REV. 1131, 1156 (2003) (“The concept of materiality is critically
important to insider trading analysis because undisclosed information always exists and
securities trading by an issuer or one of its insiders triggers a duty to disclose.”).
120. Dale A. Oesterle, The Overused and Under-Defined Notion of “Material” in
Securities Law, 14 U. PA. J. BUS. L. 167, 167 (2011).
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 39
disclose121 hinges on a determination of whether the data, information, or
event qualifies as material122—which depends on the precise definition of
materiality, as it has evolved over time.123 In common securities trading
parlance, materiality is understood as the “importance of an event or
information in influencing a company’s stock price.”124 As the U.S.
Supreme Court explained, false statements or omissions alone do not
constitute securities fraud if they are insignificant.125
In TSC Industries, Inc. v. Northway, Inc., the Supreme Court
elaborated that the decision of whether a misstatement or omission is
material depends upon “delicate assessments of the inferences a
‘reasonable shareholder’ would draw from a given set of facts and the
significance of those inferences to him.”126 While TSC was a proxy fraud
case,127 the standard articulated there was adopted for use in Section 10(b)
and Rule 10b-5 analyses in 1988 in Basic v. Levinson.128 There is no
bright-line rule to make these assessments.129 Instead, on a case-by-case
basis, the determination of whether a misstatement or omission is material
hinges upon the question of whether there is a substantial likelihood that a
reasonable investor would have viewed the information (or lack thereof)
as important, or as having significantly altered the total mix of available
information.130 This same definition of materiality is applied to statements
that are speculative or contingent in nature and to statements of opinion
(although in each case there are refined judicial tools available to guide
121. For a concise summary of the elements of securities fraud, see Dura Pharm., Inc. v.
Broudo, 544 U.S. 336, 341–42 (2005) (setting forth the basic elements of a cause of action
for securities fraud brought under Section 10(b) and Rule 10b-5 of the 1934 Act).
122. 15 U.S.C. § 77q(a)(2) (2018) (making it unlawful for a person to “obtain money or
property by means of any untrue statement of a material fact or any omission to state a
material fact necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading . . . .”); 17 C.F.R. § 240.10b-5 (2018) (barring
entities from making “any untrue statement of a material fact” or omission of a “material
fact necessary in order to make the statements made . . . not misleading”).
123. See Richard C. Sauer, The Erosion of the Materiality Standard in the Enforcement
of the Federal Securities Laws, 62 BUS. LAW. 317, 318 (2007).
124. Materiality, NASDAQ, https://www.nasdaq.com/investing/glossary/m/materiality
(last visited May 6, 2019).
125. Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988).
126. TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 450 (1976).
127. Id. at 440.
128. See Basic, 485 U.S. at 232 (“We now expressly adopt the TSC Industries standard
of materiality for the § 10(b) and Rule 10b-5 context.”).
129. Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 30 (2011).
130. TSC Indus., 426 U.S. at 449.
40 WAYNE LAW REVIEW [Vol. 65:17
application of the definition in context).131 Analyses of the relative
importance of information, and the total mix of information in specific
cases, may be impacted by blockchain-enabled data storage and
b. Disclosing Material Facts
In addition to this background on materiality, it is worth briefly
reviewing the means by which material information is typically
communicated to prevent investor fraud. Unlike the disclosures provided
by firms in compliance with mandatory disclosure rules addressed in
subsection C.3 of this Part, disclosures prompted by the federal securities
laws’ antifraud rules applicable to offers, sales, and purchases of securities
are not required to be made on a specific form or in a specific manner.
Rather, the focus in making these disclosures is on effective dissemination
of the material information to offerees, purchasers, or sellers of securities.
In general, firms publicly release material information to the public
through press releases and other routine public announcements. It has
become customary to file a Current Report on Form 8-K132 to formalize
these disclosures. These general Form 8-K filings reporting material
information are commonly made under Item 8.01 of Form 8-K, the
optional filing category for information about other events.133
As any securities lawyer with experience in counseling U.S. public
companies knows, issuers are, in reality, confronted with the need to
distinguish (i) highly important information that should be promptly
disclosed in a press release and Form 8-K; and (ii)
potentially material information that need merely be disclosed somewhere
in the next periodic report, such as a regular earnings release, Annual
Report on Form 10-K or Quarterly Report on Form 10-Q.134
131. See Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 135 S.
Ct. 1318, 1320 (2015) (addressing statements of opinion); Basic Inc., 485 U.S. at 232–41
(addressing contingent or speculative information).
132. Form 8-K, U.S. SEC. & EXCH. COMM’N, https://www.sec.gov/files/form8-k.pdf
(last visited May 28, 2019).
133. See David M. Stuart & David A. Wilson, Disclosure Obligations Under the
Federal Securities Laws in Government Investigations, 64 BUS. LAW. 973, 991 (2009)
(noting that Item 8.01 of Form 8-K “provides a catch-all disclosure option under which the
company may disclose any events, with respect to which information is not otherwise
called for, that the company deems of importance to security holders.”).
134. Ted Kamman & Rory T. Hood, With the Spotlight on the Financial Crisis,
Regulatory Loopholes, and Hedge Funds, How Should Hedge Funds Comply with the
Insider Trading Laws?, 2009 COLUM. BUS. L. REV. 357, 451 (2009).
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 41
Prompted by, among other factors, a U.S. Supreme Court decision in
an insider trading case that credited selective disclosures to market
professionals in circumstances that would give them an advantage over the
ordinary investor,135 the SEC promulgated Regulation FD,136 providing an
express requirement to convey material information to the public if it is
being conveyed to certain market-engaged individuals or entities
(including analysts and other securities market professionals).137 To
satisfy the requirements of Regulation FD, a disclosure may be made using
a Current Report on Form 8-K or by disseminating information through
any means “reasonably designed to provide broad, non-exclusionary
distribution of the information to the public.”138 The SEC has clarified that
this rule is flexible and—of significance to this article—was intended to
allow for the use of the Internet to share information.139 Although the SEC
has not made any explicit statements endorsing blockchain for public
disclosure purposes, it seems reasonable to conclude that blockchain
platforms could be deemed adequate to comply with the public disclosure
requirements of Regulation FD.
c. Implications of Blockchain for Antifraud Disclosures
The adoption of blockchain-enabled recordkeeping will have several
implications for public company disclosure practices designed to comply
with antifraud protections under federal securities law. The precise
implications of using blockchain-enabled information disclosure depend
upon whether blockchain information-tracking occurs on a public
blockchain (with the disclosed data therefore laid bare to public scrutiny)
or a private blockchain (on which access to data is controlled and most
likely limited to individuals within the organization).140 As explained
above, the choice is significant because a public blockchain makes
information (at least in theory) immediately and continuously available to
135. Dirks v. SEC, 463 U.S. 646, 657 n.16, 663 (1983).
136. For the proposition that the holding in the Dirks case was a factor in the
promulgation of Regulation FD, see Madelyn La France et al., Securities Fraud, 55 AM.
CRIM. L. REV. 1677, 1721 (2018).
137. 17 C.F.R. § 243.100(b)(1) (2019).
138. 17 C.F.R..§ 243.101(e).
139. According to the SEC, Rule 101(e) provides considerable flexibility and was
designed to permit issuers to make use of current technologies such as the Internet. See
Selective Disclosure and Insider Trading, Release Nos. 33-7881, 34-43154, 65 FR 51716-
01 (Aug. 24, 2000). The SEC provided specific guidance on the use of firm websites for
Regulation FD disclosures in 2008. See Comm’n Guidance on the Use of Co. Web Sites,
Release No. 34-58288 (Aug. 1, 2008), https://www.sec.gov/rules/interp/2008/34-
140. See supra Part I (describing the difference between public and private blockchains).
42 WAYNE LAW REVIEW [Vol. 65:17
anyone, while deploying a private blockchain—or permissioned ledger—
keeps information private.141
By making records more credible, transparent, and immediately
available, the use of a public blockchain for the storage and updating of
corporate financial and non-financial operating information may actually
lower expectations for additional disclosure because the market already
would have access to materially accurate and complete information.142 As
mentioned above, Regulation FD allows corporations to satisfy disclosure
requirements through Internet-enabled technologies.143 Therefore, given
current standards, use of a public blockchain in the context of corporate
recordkeeping and supply chain management would logically obviate or
lessen the need to make a public filing on Form 8-K or to publish the
information in a future periodic report.144 It simply would be less likely
that additional information would exist, and of it did, that it would be
important or significant to the total mix of information already available
in the market.145 It would be more likely, in other words, that accurate and
complete information already would be available to the market through
disclosure on a public blockchain.
Based on the foregoing, public blockchain-enabled information-
tracking would have at least three potential benefits to public comoanies.
First, it may allow corporations to more efficiently and effectively put
investors on at least constructive notice of information disclosed through
blockchain-enabled information-tracking that is or could conceivably be
deemed material—or, more accurately, it would proactively assure that
investors are kept on continual constructive notice. Second, by eliminating
the need for specific, event-based Form 8-K filings or other statements or
notifications, public blockchain-enabled information-tracking may
(somewhat ironically) actually draw less attention to unforeseen
141. See supra Part II.
142. See Wielgos v. Commonwealth Edison Co., 892 F.2d 509, 518 (7th Cir. 1989)
(finding no violation of Section 11 of the 1933 Act because “[e]verything we can see
demonstrates that the market had in its possession all significant information.”).
143. See supra notes 139 & 140 and accompanying text.
144. This logical leap is informed by Professor Dale Oesterle’s earlier work on
continuous disclosure under the federal securities laws and Professor Hillary Sale’s
scholarship on evolving notions of publicness. See generally Dale Arthur Oesterle, The
Inexorable March Toward Continuous Disclosure Requirement for Publicly Traded
Corporations: “Are We There Yet?,” 20 CARDOZO L. REV. 135 (1998); Hillary A. Sale,
J.P. Morgan: An Anatomy of Corporate Publicness, 79 BROOK. L. REV. 1629 (2014);
Hillary A. Sale, Public Governance, 81 GEO. WASH. L. REV. 1012 (2013); Hillary A. Sale,
The New “Public” Corporation, 74 L. & CONTEMP. PROB. 137 (2011).
145. See Wielgos, 892 F.2d at 516 (“Knowledge abroad in the market moderated, likely
eliminated, the potential of a dated projection to mislead. It therefore cannot be the basis
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 43
developments, effectively keeping otherwise noteworthy events more
discrete. Third, public blockchain disclosures may conceivably streamline
discovery in litigation or lead to the early dismissal of securities class
action lawsuits, by providing quick and easy proof that investors were
effectively kept informed of material information, even if they later
express surprise and indignation that they were not specially and
specifically notified of unforeseen developments within the organization
(at least with regard to the information tracked on public blockchain
Conversely, especially in the early years of adoption and usage, there
could be drawbacks and risks related to information-tracking on public
blockchains. For example, until the SEC specifically issues guidance or
courts resolve a case on point, it is conceivable—even predictable—that
investors would argue that blockchain-enabled information-tracking is
inadequate or inappropriate as a means of informing them of material
First, blockchain disclosure may be argued to be inadequate, in that
not all reasonable investors (at least in the immediate future) are savvy
enough to understand, access, and adequately comprehend information
conveyed via blockchain-enabled platforms. We see an implication for
lawyers here, in that they must evaluate this risk proactively when advising
clients, and also for policy-makers and judges, in that they may need to
resolve this question. Second, it may be argued that information-tracking
and information-sharing on public blockchains is inappropriate (even if it
is assumed that it is an adequate means of communication) because it over-
informs investors, effectively burying them in data, such that material
information is effectively concealed.147 This is analogous to the
phenomenon of litigators technically complying with a discovery request,
but effectively overwhelming their counterparts by providing so many
related records as to conceal the “needle in the haystack.”148 Again, this
146 But see, e.g., In re Atossa Genetics Inc Sec. Litig., 868 F.3d 784, 795-96 (9th Cir.
2017) (asserting that, in a direct reliance action, misstated or omitted facts that are
corrected or supplied through public disclosure do not necessarily render those facts
147. See Vice-Chancellor Jacobs, Sonet v. Plum Creek Timber Co., L.P., 24 DEL. J.
CORP. L. 1254, 1268 (1999) (“[I]f material information facts are buried in a lengthy
disclosure document so that the true import of that information is lost, such ‘buried fact’
disclosure may be deemed misleading.”).
148. See Hagemeyer N. Am., Inc. v. Gateway Data Scis. Corp., 222 F.R.D. 594, 598
(E.D. Wis. 2004) (indicating that a responding party to a discovery request “cannot attempt
to hide a needle in a haystack by mingling responsive documents with large numbers of
non-responsive documents.…[But there is] no duty to organize and label the documents if
[the responding party] has produced them as they are kept in the usual course of business.”).
44 WAYNE LAW REVIEW [Vol. 65:17
raises a question for attorneys to consider and highlights a potential dispute
that policy-makers and judges eventually may be called upon to resolve.
Private intra-corporate blockchains raise a different set of implications
for antifraud disclosures. If an information-tracking application relies on
a private blockchain, then investors do not have better and faster access to
more credible data—only the company (together with its permitted
representatives and agents) does.149 Therefore, if a private blockchain is
used, because the company and its permitted representatives and agents
have faster access to more credible data (but external observers do not),
the use of information-tracking on the blockchain may alter disclosure
expectations in the opposite way. Namely, management would be
expected to disclose more than in the past or at present to the extent that
the private blockchain makes management more aware of potentially
material information that has not been publicly disclosed.
Gone would be any conceivable defenses that certain information was
not immediately knowable by the board of directors or officers of the
corporation,150 at least regarding the information kept on the private
blockchain-enabled platform. Attorneys would be well advised to gain and
maintain technological and operational astuteness and proactively raise
concerns and offer solutions, and officers and directors would be well
advised to actually (rather than constructively) know and then disclose
information that could qualify as material. It is, further, conceivable that
spreading popular awareness of enhanced record-keeping could alter
regulators’ and courts’ conceptions of what a reasonable investor would
find important or would want to know as part of the total mix of
information that an investor considers when making investment
To summarize, the implications of blockchain for controversies and
decisions about materiality depend on the kind of blockchain application
that is deployed: public or private. However, materiality is not the only
disclosure standard applicable to the external communication of
information. In the next section, we turn our attention to related, but
distinct, contexts relating to public company mandatory disclosure
149. See supra Part I.
150. Cf. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976) (noting the failure of an
accounting firm to discover and comment on material nonpublic information).
151. Cf. Joan MacLeod Heminway, Female Investors and Securities Fraud: Is the
Reasonable Investor A Woman?, 15 WM. & MARY J. WOMEN & L. 291, 296 (2009) (“[T]he
nature and source of conceptions of the reasonable investor raise a number of important
unanswered questions. These questions include . . . whether—and if so how—decisional
law context (including the interaction of materiality and other elements of a fraud claim,
e.g., scienter or reliance) affects our view of the reasonable investor.”).
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 45
3. Mandatory Disclosure
As mentioned in Part II.C.2,152 the legal framework concerning
securities fraud, which requires the reporting of material information when
there is a duty to disclose, is not the only body of law that compels the
disclosure of information by firms with publicly offered or traded stock.
Issuers that are required to comply with Section 13(a) or Section 15(d) of
the 1934 Act153 must file various periodic and transactional reports and
statements, including (as applicable) quarterly and annual reports, proxy
statements, tender offer statements, and going-private statements.These
reporting obligations have been standard-bearers of federal securities
regulation in the United States from the start.
However, this mandatory disclosure regime has been enhanced over
the years through legislation and regulation, including by the enactment
(starting in 2002) of various federal legislative responses to significant
episodes of corporate fraud evidencing failures in corporate
governance.154 These legislative initiatives include expectations for both
internal information-tracking and public-facing communication. For
example, the Sarbanes-Oxley Act of 2002 (SOX) requires public
attestations, by a firm’s Chief Executive Officers and Chief Financial
Officers in the firm’s annual and quarterly reports, that adequate audit
mechanisms are in place to detect fraud or other financial misdeeds within
their organizations.155 These officers require factual support for their
While it is far from certain, the deployment of a blockchain-enabled
financial data-tracking mechanism—without an additional audit system—
may technically satisfy key provisions of SOX that require each publicly
traded firm both (a) to have effective internal controls and processes
designed to generate accurate and complete public disclosures156 and (b)
to include a report on financial internal controls (including an “assessment,
as of the end of the most recent fiscal year of the issuer, of the effectiveness
of the internal control structure and procedures of the issuer for financial
reporting”) in its annual report filing.157 The continuous and constant
152. See supra Section II.C.2.
153. 15 U.S.C. § 78m(a) (2018); 15 U.S.C. § 78o(d).
154. See id.
155. Pub. L. No. 107-204, 116 Stat. 745 (codified as amended at 15 U.S.C. §§ 7201–
7266 (2002) and in scattered sections of 18 U.S.C., 28 U.S.C. & 29 U.S.C.), at § 302(a)).
156. 15 U.S.C. § 7241(a) (2019).
157. 15 U.S.C. § 7262 (2019). For a more in-depth discussion of duties created by the
Sarbanes-Oxley Act, see Larry Catá Backer, The Duty to Monitor: Emerging Obligations
of Outside Lawyers and Auditors to Detect and Report Corporate Wrongdoing Beyond the
Federal Securities Laws, 77 ST. JOHN’S L. REV. 919 (2003).
46 WAYNE LAW REVIEW [Vol. 65:17
verification of previous records by independent nodes would likely allow
officers of the company to meet the attendant requirement that they
personally evaluate the effectiveness of the corporation’s internal controls
as of a date within 90 days prior to each quarterly and annual report.158
Reasonable minds could disagree on any of these assertions about the
effects of blockchain data-tracking on these regulatory requirements—
only a proactive decision of policy-makers, or the retroactive
determination of a judge in a dispute, will resolve these questions. Until
then, it is up to scholars to make arguments and up to practitioners to
highlight risks and recommend liability-limiting protections for
corporations and their officers and directors.
Blockchain technology can also aid in maintaining and releasing non-
financial disclosures. These non-financial disclosures include, for
example, those mandated by the Dodd-Frank Wall Street Reform and
Consumer Protection Act159 (regarding, among other things, the
publication of information about minerals sourced in conflict zones160),
those compelled by statutes and regulations requiring public disclosures
of environmental data161 (including the Toxic Release Inventory Act162),
those compelling the disclosure of impacts on people (for instance, the
workplace health and safety data publication requirements set by and
under the Occupational Safety and Health Act163), and voluntary
sustainability disclosure practices adopted by over 90% of the largest 250
companies in the world.164
The enhanced tracking of information, certifications and inspections,
or data on the provenance of materials in the supply chain enabled by a
blockchain present a now familiar double-edged sword. On the one hand,
158. 15 U.S.C. § 7241(a)(4)(C).
159. Pub. L. No. 111–203, 124 Stat. 1376 (2010). For an overview and discussion of the
law, see David M. Lynn, The Dodd-Frank Act’s Specialized Corporate Disclosure: Using
the Securities Laws to Address Public Policy Issues, 6 J. BUS. & TECH. L. 327 (2011); see
also Emily Veale, Note, Is There Blood On Your Hands-Free Device?: Examining
Legislative Approaches to the Conflict Minerals Problem in the Democratic Republic of
Congo, 21 CARDOZO J. INT’L & COMP. L. 503, 544 (2013).
160. The Dodd-Frank Act, § 1502, 124 Stat. at 2213–18. See generally Veale, supra
note 158 (arguing “that an effective solution to the conflict minerals crisis requires more
than Dodd-Frank’s mandated SEC disclosures.”).
161. See, e.g., Emergency Planning and Community Right-to-Know Act (EPCRA), 42
U.S.C. §§ 11001–50 (2000).
162. 42 U.S.C. §§ 11003, 11022–23.
163. Pub. L. No. 91-596, 84 Stat. 1590 (1970).
164. For a more thorough discussion of sustainability reporting, integrated reporting,
their relationship to statutes and the materiality principle, and reasoning in support of
clearer requirements for such reporting, see Adam Sulkowski & Sandra Waddock, Beyond
Sustainability Reporting: Integrated Reporting is Practiced, Required and More Would be
Better, 10 U. ST. THOMAS L. J. 1060, 1061 (2013).
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 47
a public blockchain-enabled solution would arguably satisfy reporting
requirements in a more efficient and reliable manner.165 On the other hand,
no blockchain platform can assure the reliability of data measurement and
data entry.166 And no blockchain platform—in and of itself—assures that
company leadership will take note and act upon the recorded information.
Furthermore, the use of a platform enabled by a public blockchain for
mandatory or voluntary public disclosures of information holds the added
risk that management has little capacity to control the narrative or withhold
data based on the determination that information is immaterial.167 There is
a risk that data becomes misunderstood because management loses the
opportunity to package the disclosed information for digestion by
shareholders and investors.
The use of a private blockchain would result in fewer differences from
present practices. Although private blockchain-enabled platforms would
offer several benefits similar to those offered by a public blockchain (e.g.,
more quickly delivering more reliable data to management), private
blockchains offer the additional benefit of preserving some discretion over
what, when, and how information is divulged to the greater public. In other
words, a private blockchain solution would preserve the more selective
information-curating common to periodic and transactional reporting by
public companies as we currently know and understand it. However, as
addressed in more detail below, the consideration of a private blockchain-
based application should include a conversation about the specifics of the
terminology used in related public announcements.168
An additional option to raise, for purposes of disclosures (both those
that are mandated, and those that companies may voluntarily undertake),
is for a party outside the corporation—either a governmental agency or an
organization outside the control of any corporation or consortium of
corporations—to establish a public blockchain. An example would be a
government, UN agency, or NGO establishing a public blockchain for the
registration and tracking of minerals mined in conflict zones.169 This
165. See supra Section II.C.2.b.
166. See supra Part I.
167. To see the importance of controlling the narrative, see Walter Pavlo, The Shkreli
Trial Is About Controlling Narrative, And That Is Not Good For Justice, FORBES (Jun. 30,
controlling-narrative-and-that-is-not-good-for-justice/#64cd020a4b3b (showing that in the
Martin Shkreli securities fraud trial, “controlling the narrative is more important than
mounting a prosecution or defense strategy. If you control the public narrative, you control
168. See infra Part III.
169. See e.g., Yogita Khatri, Rwanda Starts Tracking Conflict Metal Tantalum with
Blockchain, COINDESK (Oct. 17, 2018), https://www.coindesk.com/rwanda-starts-
48 WAYNE LAW REVIEW [Vol. 65:17
would at least remove the potential perception that corporations have
somehow set up the tracking mechanism to allow for editing of records,
even though it would still not solve the problems of first-person and
second-person trust described above.170
A final cautionary note must be raised with regard to statutes and
regulations that mandate nondisclosure—in other words, laws such as the
Health Insurance Portability and Accountability Act of 1996 (HIPAA)171
and the Financial Modernization Act of 1999, commonly known as the
Gramm-Leach-Bliley Act (GLB)172—which were passed to protect the
privacy of data in the context of, respectively, the health care industry and
the banking sector.173 If the legacy of SOX is any indication of what to
expect, savvy (if somewhat unscrupulous) entrepreneurs will soon offer
blockchain-enabled data-tracking systems that claim to be HIPPA- or
GLB-compliant, even if the statutes do not actually define what qualifies
as a compliant blockchain application.174 Attorneys should be attentive to
these developments and become adequately familiar with the privacy
safeguards in the relevant body of law, as well as in the technology, to
better advise firm management as to the prudence of adopting blockchain
technology in these contexts. It may fall upon attorneys to help firm
leadership imagine worst-case scenarios, such as all-to-common data
breaches, and lead contingency planning.175 Especially when strict data
privacy rules are involved, data breaches may trigger reporting
tracking-conflict-metal-tantalum-with-blockchain (indicating that Rwanda’s government
will use blockchain technology to track tantalum).
170. See supra Part I.
171. 42 U.S.C. § 1320d-6 (2018).
172. 15 U.S.C. §§ 6801-6809 (2018).
173. For a review of major federal statutes dealing with data privacy, see Adam J.
Sulkowski, Cyber-Extortion: Duties and Liabilities Related to the Elephant in the Server
Room, 2007 U. ILL. J.L. TECH. & POL’Y 21, 33–44 (2007).
174. See id. at 36 (stating SOX “has led to a burgeoning market in IT systems claiming
to be ‘Sarbanes compliant . . .’”); see also Mark Rasch, Sarbanes Oxley for IT Security?,
REGISTER (May 3, 2005),
https://www.theregister.co.uk/2005/05/03/sarbanes_oxley_for_it_security/ (noting the
widespread claim by computer security vendors that their products and services are
“100% Sarbanes Oxley Compliant” and examining how SOX is relevant to IT security
and how proper IT security can prevent some types of fraud).
175. See generally Emily Johnson, A Cyber Breach Contingency Plan is Not Just the
CIO’s Responsibility, INFORMATIONWEEK (Apr. 2, 2018),
lawyers’ role in data breaches and contingency planning).
176. See e.g., Josephine Wolff, How Is the GDPR Doing?, SLATE (Mar. 20, 2019),
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 49
III. IMPLICATIONS FOR LEGAL COUNSEL
The foregoing analysis leads to a number of implications for attorneys,
several of which were mentioned in the context of the specific corporate
governance applications of blockchain technology described in Part II.177
Enterprise solutions based on blockchain already exist and are poised for
widespread adoption.178 It is more likely to be a question of when—not
if—legal counsel is confronted with issues related to blockchain
(assuming no confrontation has taken place yet).179
In this milieu, business lawyers must not only keep abreast of
developments in technology, but also actively query clients so as to be
aware sooner (rather than after the fact) if they are adopting blockchain-
enabled corporate governance platforms or modalities. Under the Model
Rules of Professional Conduct, a lawyer is urged to keep abreast of
technological developments necessary to service the lawyer’s clients.180
Business law practitioners therefore would be wise to adopt a disciplined
and regular practice of reviewing blockchain developments as they relate
to corporate governance matters.181
The second discernible implication of blockchain-based corporate
governance is that attorneys have a role in educating their clients on the
legal implications of the adoption of new technologies relating to or in the
course of representation.182 This, too, is a matter of professional
fines.html (stating that the European Union’s General Data Protection Regulation “requires
organizations to report data breaches to both the affected individuals and the appropriate
regulatory authorities within 72 hours of being discovered.”).
177. For a discussion of the implications for attorneys of blockchain adoption in
business supply chains with similar conclusions, see Sulkowski, note 16, at 326–344.
178. Capital markets are projected to spend $400 million on blockchain technology in
2019, according to the Aite Group. Reina G. Wiatt, From the Mainframe to the Blockchain,
STRATEGIC FIN. (Jan. 1, 2019), https://sfmagazine.com/post-entry/january-2019-from-the-
mainframe-to-the-blockchain/. Accenture estimates that blockchain may save investment
banks $8-12 billion annually by 2025. Id. Market Reports Hub predicts that the growth rate
of blockchain technology may be over 60% by 2021. Id. According to the World Economic
Forum, 10% of the world’s GDP will involve a distributed ledger by 2027. Id.
179. Erik P.M. Vermeulen, Corporate Governance in A Networked Age, 50 WAKE
FOREST L. REV. 711, 713 (2015) (“In today’s business environment, every company has
basically become a technology company. This explains why smart companies increasingly
attempt to become more agile, innovative, and responsive by restructuring the way they are
180. See MODEL RULES OF PROF’L CONDUCT r. 1.1 cmt. 8 (AM. BAR ASS’N 2016).
181. See Mark Popielarski, Blockchain Research: Bitcoins, Cryptocurrency, and
Distributed Ledgers, COLO. LAW. 10 (June 2018), http://www.coallnet.org/wp-
content/uploads/2018/06/Irc0618.pdf (compiling issues, resources, and practices
recommended for lawyers).
182. See Sulkowski, supra note 16 at 333–35.
50 WAYNE LAW REVIEW [Vol. 65:17
responsibility as well as a best practice.183 This second implication builds
on the first. To render timely, valuable, and actionable advice, attorneys
must develop both technological and operational astuteness. While legal
counsel may not need a course or certification in coding, proffering sound
legal advice behooves familiarity with the benefits and risks of specific
blockchain applications and how they are being deployed and used.184
Notably, the terminology used by a company could raise the risk of
liability. Legal actions brought by investors or customers may be founded,
for example, on the allegation that the firm’s use of the word “blockchain”
to refer to a permissioned ledger was fraudulent or misleading.185 To be
clear, we do not have a strong opinion about the merits of such a claim,
but the disagreement over this issue must be acknowledged; and it would
be a potentially costly mistake to avoid raising the issue proactively with
one’s client or to avoid discussing options for minimizing risks of this
kind. Along similar lines, legal counsel should query and point out the
extent to which a given distributed ledger technology truly keeps an
A third implication, related to the first two, is that practitioners, policy-
makers, scholars, and judges would be better off being proactive in
discussing the implications of blockchain in the context of corporate
governance (and possibly corporate policies more generally), rather than
figuring things out retroactively.187 Legal counsel may need to be
uncharacteristically proactive, relative to norms of the legal profession—
actively seeking knowledge, offering observations, and testing ideas well
outside a lawyer’s typical comfort zones.188
183. See MODEL RULES OF PROF’L CONDUCT r. 1.4(b) (AM. BAR ASS’N 2018) (“A lawyer
shall explain a matter to the extent reasonably necessary to permit the client to make
informed decisions regarding the representation.”).
184. See id.
185. See supra Part I.
186. For a synopsis of reasons to question the characterization of records kept on
distributed ledgers as immutable, with support references, see Nathan Fulmer, Exploring
the Legal Issues of Blockchain Applications, 52 AKRON L. REV. 161, 170 (2018).
187. For a discussion of the relevance of proactive legal scholarship to the practice of
law in the blockchain era, see Sulkowski, supra note 16, at 340–45. For a broader review
of proactive legal strategies, see Gerlinde Berger-Walliser et al., Using Proactive Legal
Strategies for Corporate Environmental Sustainability, 6 MICH. J. ENVTL. & ADMIN. L. 1
188. One commentator put it well:
[C]onsider the role of corporate governance intermediaries, such as corporate
lawyers, accountants, auditors, and other advisors and consultants. These
intermediaries are generally considered to be conservative, risk averse, and
reluctant to think “out of the box.” They tend to recommend boilerplate
standardized arrangements and compliance with one-size-fits-all “best practices”
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 51
To take one example, it would be advantageous for enterprises, the
investment community, and other stakeholders, if the SEC were to issue
clarification on whether the tracking of information on a public blockchain
satisfies the disclosure requirements of Regulation FD.189 Specifically, this
clarification would create more regulatory certainty and predictability,
encouraging entrepreneurs to develop related blockchain disclosure
applications, confident that there would be a potential market for their
products. In the absence of SEC action clarifying the role of public
blockchain in Regulation FD compliance, legal counsel will be required to
make nuanced judgments based on accumulated knowledge. Proactive
education is consistent with a lawyer’s general obligation to “cultivate
knowledge of the law beyond its use for clients, employ that knowledge in
reform of the law and work to strengthen legal education.”190 As those
most familiar with corporate governance laws and norms, business law
practitioners advising firms on corporate governance may well find
themselves having to explain the interface between corporate governance
This exhortation to legal counsel and others (including policy-makers)
to be proactive is predicated upon two implied assumptions that deserve
to be stated more explicitly.
First, techno-utopian assertions notwithstanding, we believe that
blockchain, like other technologies, will not, on its own, predetermine
outcomes that are necessarily more desirable—whether to specific
stakeholders or for the better functioning of markets or society as a whole.
For example, depending on the nature of the blockchain used for a specific
application (including, e.g., whether it is public or private and, if private,
how the permissions are constructed and managed), blockchain’s
transparency may have both benefits and detriments in the context of
shareholder record-keeping and voting. Moreover, it may seem that
information-tracking on a public blockchain would increase efficiency and
transparency and, therefore, serve the interests of investors.
However, as we have pointed out, the desirability of the actual
outcomes also may depend on specifics of how this idea is implemented
in practice. For example, material information may be effectively
rather than offering their clients customized and more optimal organizational
Vermeulen, supra note 180, at 720.
189. See supra Section II.C.2.b.
190. See MODEL RULES OF PROF’L CONDUCT PMBL. ¶6 (AM. BAR ASS’N 2018).
191. See id., r. 1.4 cmt. 5 (“[T]he lawyer should fulfill reasonable client expectations for
information consistent with the duty to act in the client’s best interests, and the client’s
overall requirements as to the character of representation.”).
52 WAYNE LAW REVIEW [Vol. 65:17
concealed in a flood of data, as alluded to previously.192 There may be a
role for policy guidance to assure that the interests of investors and the
functioning of markets are actually served, rather than hindered. A related
question is whether the traditional current periodic reporting requirements
and Form 8-K disclosure regime would be rendered obsolete by a
wholesale move of financial and operating disclosures to blockchain
applications. This is a more radical change and thus would require
significant study and thought.
Second, our encouragement of taking a proactive approach assumes
that the technology and its adoption and use is fundamentally governable.
Again, this is notwithstanding the prognostications of techno-enthusiasts
and blockchain application evangelists, some of whom see an eroding role
for large central authorities (especially in contexts in which they create
inefficiencies and charge for their role as verifiers of records).193 No doubt
this might be a welcomed development to anyone who has experienced the
delay and paid the fees necessary to transfer money internationally or to
engage in other activities that require significant intermediation.
However, we believe it is instructive to remember that some similarly
predicted a sovereign-free Internet in the 1990s that would empower
individuals.194 Instead, the Internet became commercialized (resulting in
several of the world’s largest private fortunes) and, especially when
coupled with smartphones, a pervasive tool of government and corporate
surveillance and manipulation.195 Similarly, it would be naïve to believe
that blockchain-enabled applications will inevitably lead to the downfall
of centralized public and private sector power.196 To borrow Kai-Fu Lee’s
192. See supra Section II.C.2.b.
193. As the co-founder and CEO of VALR, a cryptocurrency platform, stated:
We’ve been told that blockchain technology will get rid of the need for trust in
the world. We won’t have to trust corrupt governments, greedy corporations or
rigged electoral systems. Everything from deeds offices to supply chains to
voting systems to identity will be revolutionized, ensuring we never have to
trust another untrustworthy human being, institution or government ever again.
This is a pipe dream that is unsubstantiated and misleading.
Farzam Ehsani, The False Promise Blockchains will Revolutionize Real-World Assets,
COINDESK (Jan. 5, 2019), https://www.coindesk.com/the-false-promise-blockchains-will-
194. See Timothy B. Lee, Is Bitcoin a Joke? People Thought that About the Internet
Too, VOX (June 30, 2014), https://www.vox.com/2014/6/30/5839436/marc-andreessen-
on-bitcoin (noting an early criticism of the internet as being decentralized and that
businesses would not trust it).
195. See id.; see generally Jo Jung, What the Internet Used to Look Like–And What it
Says About Society, INDEPENDEN T (Sept. 12, 2018), https://www.independent.co.uk/life-
a8531706.html (noting the history of website design).
196. See Ehsani, supra note 194.
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 53
conclusions after many years on the frontlines of advancing artificial
intelligence, human norms can and must be applied through public policy
to the regulation of the deployment and use of technology.197
This leads us to a final reflection on conceptualizing the role of
attorneys in the blockchain era as including a vital mediating function.198
While we do not all need to become programmers, and while some legal
professionals’ roles could be automated,199 there is a key higher-order
function that attorneys should appreciate and embrace. That role is to
better understand the human values and interests of clients and other
stakeholders and, in the words of Nick Szabo, to help translate the “wet
code” of human norms into the “dry code” of software.200 This also entails
helping clients understand what encoded rules are irrevocable, what
consequences might be self-executing, and various contingencies—
preferably before adoption decisions are made.
Rather than obviating the need for attorneys, blockchain adoption in
the context of corporate governance raises the stakes for and potential
value of technologically and operationally astute legal professionals and
policy-makers.201 “Lawyers will play a key role other than coding.”202 For
scholars, it also creates an opportunity to explore and explain the issues
and preferable approaches to attorneys, legislators, regulators, and judges
who eventually will need to plan for implementation and resolve disputes.
197. See generally KAI-FU LEE, MY JOURNEY INTO AI: THE STORY BEHIND THE MAN
WHO HELPED LAUNCH 5 AI COMPANIES WORTH $25 BILLION (2018) (autobiographically
making this and other related points).
198. See Sulkowski, supra note 16, at 341–44.
199. See Jeffrey Unger, How Technology and Automation Enable Lawyers to Deliver
Personalized Services, FORBES
(Nov. 16, 2016), https://www.forbes.com/sites/forbeslegalcouncil/2016/11/16/how-
service/#4d8ce97f5a6a (detailing how lawyers can automate processes to spend more time
200. See Nick Szabo, Wet Code and Dry, UNENUMERATED (Aug. 24, 2008, 2:51 PM),
201. See generally Olga V. Mack, From the Bar to Blockchain: Why Lawyers Should
Consider Joining the Blockchain Industry, ABOVE THE L. (Jul. 30, 2018),
consider-joining-the-blockchain-industry/ (summarizing the entry of and benefits for
lawyers practicing in the blockchain arena).
202 Dennis Kennedy, Thinking Smartly About Smart Contracts Lawyers Should Get A
Jump-Start on Contributing to This Emerging Technology, LAW PRAC. (January/February
2018), at 56, 59.
54 WAYNE LAW REVIEW [Vol. 65:17
Blockchain, as a record-keeping technology, has the potential to
fundamentally alter significant aspects of corporate governance—in
particular, those involving data-tracking or communication.203 In the view
of many, blockchain-based information-tracking is more immediate,
transparent, and credible than alternatives involving a centralized point of
control. If a firm utilizes a public blockchain, it can be more transparent to
those outside the firm as well.
For purposes of this article, we defined corporate governance broadly
and then examined certain practices specifically.204 We discussed
blockchain’s foreseeable impacts on shareholder recordkeeping and
voting, insider trading, and disclosure, as well as related legal questions.205
In some cases, existing rules and principles can be applied to these new
contexts, and we can divine issues and arrive at reasonable guesses as to
legal conclusions. In other cases, our application of existing rules and
principles to foreseeable scenarios leads to questions rather than answers
and the realization that there may be legal lacunae that policymakers may
want to address proactively (and, absent clarifications, that judges may
need to prepare to address retroactively in the context of disputes).
Based on this analysis of specific scenarios, we identified
generalizable observations and meta-themes for attorneys and the practice
of law in the nascent context of blockchain-enabled corporate
governance.206 We arrived at several items of guidance.
First, it behooves attorneys not only to stay updated about the state of
applicable law and relevant interpretations, but also to expand their scope
of awareness to include technological and operational astuteness.
Second, in both the context of advising firm management and public
policy-making, it is prudent to be proactive.
In representing business clients, counsel have a critical role in thinking
through all the implications of moving any governance function or process
to a blockchain-based platform. It is especially important to help clients
see, consider, and appreciate certain irrevocable consequences and legal
risks, as well as potential opportunities. In the realm of policy-making and
rule interpretation, anyone engaged in the practice, administration,
scholarship, or making of law has a role to play in researching, pondering,
discussing, and proposing policy solutions in the context of ambiguities.
203. See supra Part I.
204. See supra Part II.
205. See supra Parts I & II.
206. See supra Part III.
2019] BLOCKCHAINS AND CORPORATE GOVERNANCE 55
This will create more certainty for markets, market participants, and
society as a whole.
Finally, we arrived at a conceptual reframing that has been gaining
ground for several years: far from obsolescence, the role of lawyers is
going to evolve to include a type of translation function—consulting with
clients and others to better comprehend interests, goals, and principles and
to assist in transforming these human norms and values into software code,
such that its deployment and use serve our ends, rather than vice versa.
This also impacts the job of legal educators and law schools. “While
blockchain-centered legal jobs of the future will be the centerpiece of any
law school reform agenda, the future of non-blockchain-centered legal
employment is equally important.”207 Based on the observations we make
here, there undoubtedly will be a growing need for lawyers who can
address blockchain issues relating to corporate governance.
207 Mark Fenwick et. al., Legal Education in the Blockchain Revolution, 20 VAND. J.
ENT. & TECH. L. 351, 382–83 (2017).