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Digital Corporate Governance in a Post-Covid World

Companies have always been operating in the context of evolving political and societal environments. Today, climate change, the war in Ukraine, and the aftermath of a global pandemic are the new realities that companies’ leaders have to take into account when conducting business.

This is reflected in the 2022 AGM season, which has shown that companies are increasingly held accountable by their investors for the impact they have on society, their own employees, and the planet. Environmental, Social, and Governance issues (ESG) are, without question, the critical lens through which investors view companies today.

Next to ESG issues, the OECD report emphasizes the need to adapt corporate governance rules and practices to the post-COVID-19 reality. Amongst others, digitalization is a central factor here, and this article highlights some opportunities for digitization and digitalization targeting some of the ESG issues and shows how decentralized technologies can enable digitalization in areas that have been notoriously difficult to move online. Blockchains such as the Tezos blockchain can create trust and security in the corporate governance of the future.

“G” — Governance — rules, practices and processes

The Covid pandemic has turbocharged digitalization in many aspects of our everyday life. The pandemic has shown how digitalization has, for a long time, been lacking behind what’s already possible. The move to remote and hybrid work involved the practical challenges of organizing work online and has also been a challenge to governance.

Definitions of corporate governance vary. However, they always incorporate aspects of organization and means of control. It is described as a set of rules, practices, and processes to direct and control an organization.

Moving to remote work has not only led to employees needing to work from home but also impacted the dimension of processes and practices of governance, such as the need for digital shareholder meetings and board — and employee-representative elections.

The first experiences of companies conducting virtual AGMs have quickly turned out to have had some additional benefits for companies. Digital events are significantly more cost-effective than in-person meetings. Also, they mitigate the environmental footprint of a company, as shareholders don’t have to fly in to be present at an in-person conference. But it has also shown that companies have not used tools that allow for more live engagement and transparency at the annual meetings. Therefore, virtual Meetings have been less engaging and inclusive than their analog predecessors.

One of the most central procedures in corporate governance is voting for representatives and board members and resolution voting during live meetings. The way companies elect their boards, employee representatives, or governing bodies are very dependent on national and legal contexts. Digitizing this process has been notoriously difficult, and it is no surprise that barely any country is holding political elections online today. Like political elections, company voting can represent high-stake elections that can be subject to malicious attacks or post-election contestation.

Electis’ voting solution allows for verifiable and confidential voting in company elections. Electis is using a voting protocol developed by Microsoft for US voting machines and is applying it to an online voting system. This protocol allows to conduct calculations on encrypted ballots without having to decrypt them first. No one, not even the organizers of the election, can reveal the content of any individual ballot. The second crucial layer of the solution is blockchain technology. The encrypted ballots are stored transparently and securely on the Tezos blockchain making the results virtually unhackable and end-to-end verifiable.

State-of-the-art blockchains such as Tezos are much more environmentally friendly than older blockchains, which have been under scrutiny for their high energy usage. This is done with the help of different mechanisms of block validation, central to every blockchain. Tezos is using the so-called “liquid proof-of-stake” mechanism. This process is much more efficient and less costly than the proof-of-work mechanism and uses only a fraction of its energy.

Examples where company elections are legally valid to be held online are the employee representative elections “CSE” in France and virtual AGMs in Germany. Legislation in these cases has adapted to permanent law after originally only meant to be an emergency measure during the Covid pandemic.

“S”: Social and Governance Values

Covid has not only brought challenges to the practical execution of governance and remote work. It has also challenged the way people think about work and what they expect from their companies as employers.

Going back to the definition of corporate governance, one can find a second level to its definition. Next to rules and processes, it also relates to a set of values such as transparency, trust, fairness, responsibility, and inclusivity. Some of these issues relate directly to the social dimension of ESG, which includes talent management, organizational development, workforce diversity, and corporate culture.

“Good corporate governance helps to build an environment of trust, transparency and accountability necessary for fostering long-term investment, financial stability and business integrity”. (OECD)

The so-called great resignation has been traced back to employees staying home through lockdowns and reassessing their relationships with their work and employers. The top-down model of traditional organizations usually means that ideas are communicated down from the leadership of a company to its workforce. Even though hierarchies, especially in big organizations, have their justifications, often, this can reduce job satisfaction and inhibit employees from aligning their goals with the company. Furthermore, this model can prevent innovation and collaboration.

Studies show that goal setting works best if it is collaborative, involves employees, and recognizes their values and what they need to reach their potential.

“employees’ emotional connection and engagement are inextricably linked to the overall health and function of a company’s workforce, its ability to retain talent and, ultimately, to the company’s success.” (Gallup)

So why not use digital technologies to include and engage employees in corporate governance? For this, it is crucial to have a trustless solution. Employees must be assured that voicing their concerns will not fall back on them negatively.

With the right digital tools, leaders can make inclusive decisions about the organization’s future. They can identify problems and are in the position to be better prepared to address them and avoid potential disagreements, tensions, and conflicts.

Furthermore, confidential employee surveying tools can help with fact-finding and give valuable information about a company’s ESG benchmarks, such as workforce diversity and employee wellbeing. This includes data such as health, ethnicity, and gender identity, which is highly sensitive for a company to collect and store. Employees need to be sure the information they share is safe and confidential and that published data is a true reflection of their answers. Homomorphic encryption guarantees that the individual data will not be deciphered individually and therefore that the sensitive individual data is not stored as such. Again, verifiability, security, and confidentiality are key. Blockchain-based solutions can help companies create a safe digital space for their employees.

State-of-the-art e-governance tools based on blockchain technology can increase integrity and accountability in corporate governance, leading to more trust in organizations and their leadership. Such tools can digitize not only existing governance structures but also open new opportunities to increase employee engagement and participation in the future.

Learn more about Electis online voting, consultation, and critical surveying solutions here.

by Lena Melcher

Bibliography

  • Brunswick. ESG during the 2022 AGM season (Link)
    2 OECD. The Future of Corporate Governance in Capital Markets Following the COVID-19 Crisis (Link)
  • Corporate Governance Institute. What is Corporate Governance? (Link).
  • Brunswick. Investor Engagement: Virtual AGMs in times of COVID-19 (Link)
  • OECD (Link)
  • Gallup: Reimagining Employee Engagement In The Great Resignation Era (Link)