Long Days, Short Stint

The juxtaposition of long summer days against concerns over short-termism seemed to be a key theme in summer 2018.  It started in June with the Business Roundtable urging companies end quarterly earnings guidance.  Then in August, we had a two-fer:  Senator Elizabeth Warren (D-MA) introduced The Accountable Capitalism Act and President Trump tweeted the idea of changing from quarterly to semi-annual earnings reporting.

What all these had in common was a concern the short-termism prevalent in today’s market is detrimental to the long-term health of companies and economy overall.  And each, in their way, proposed changes or actions to counteract those forces.  I too am concerned about short-termism, but question why so many seem to think that its companies that need to change to alleviate the problem – it all about companies needing to start doing this or stop doing that.

Maybe I’m missing something, but I rarely hear suggestions on how investors or other financial market participants need to change.  Let’s face it, there’s a significant number of financial market participants who are not long-term focused – think some hedge funds as well as high frequency and risk management traders.

On any given day, these short-term focused market participants can dominate market volume thanks to easy access to information, technology that speeds decision-making and execution, and low transactions costs.  As Tim Quast of Modern IR noted, “when some machine can hammer every bid or offer and immediately cancel the order and reprice your stock 8% lower with a one-share trade. It’s absurd. We are failing to understand what the real malady of markets is – and it’s much more about structure than story.”

In my view, the majority of public companies are long-term oriented but in the competition for capital they need to deal with the reality of a market focused on quarterly results and the daily news flow.  So, what’s a company to do?  Well, don’t give up.  Many of your permanent and long-term investors want to hear about your strategies for the future.  One great idea comes from the Strategic Investor Forum which suggests companies treat quarterly earnings as “building blocks of longer-term plans and disclosure rather than the central focus.”  You can also review the 2017 Focusing Capital on the Long Term (FCLT) report for thoughts on how to shift the investor dialogue to a more long-term perspective.

While short-termism won’t go away any time soon, by consistently providing a longer-term perspective on the company’s framework for creating value and managing risk in a dynamic environment, you’ll be better positioned to earn investor patience and plan for the future.

Lisa Ciota
Lead-IR Advisors, Inc.

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Just Being

Last week, I highlighted the high level of CEO turnover so far in 2018 and offered some thoughts on introducing a new CEO to the Street.  This week, I want to share some insights gleaned from research conducted by leadership advisory and consulting firm EgonZehnder to help investors relations officers become more fully aware of some of the behind the scenes dynamics of a C-Suite transition.

First, it pretty much goes without saying that new CEOs – both internal and external hires – need a acclimation period to fully understand the company’s issues and formulate a plan.  But its more than that.  You’ve probably heard the phrase “what got you here, won’t get you there.”  The knowledge and skills built over a career of “doing” (executing) is necessary, but not sufficient to “being” a CEO.

“Being” is the operative word here.  The CEO role is an intensely transformational role and in this sense the acclimation period is never truly over.  The CEO role is one that must be inhabited and embodied according to EgonZehnder’s CEO survey.  During the transition period, new CEOs need to not only gather and assess information, but also accelerate their ability to internally reflect and become more self-aware in their decisions, actions and feedback received.  It’s a process that never really ends, although CEOs get better at it over time.

This is why a less is more approach with investors is generally best in the first few months. It provides space for the new CEO to internalize some of the transformation required. However, new CEOs can be surprised at how little honest feedback they receive from the Board or senior management team, which can slow the transformation process.  Investor Relations should be sensitive to this dynamic and may be able to help.  Think of  investors who have unique or nuanced insights and with whom it may be useful for your new CEO to meet with early on (in a listen-only mode) in order to gather perspectives helpful to setting strategic priorities.

Next, new CEOs are also new to navigating board relationships.  Let’s face it:  The Board may have chosen the new CEO, but the CEO didn’t choose the board.  This can make for some interesting dynamics as the new CEO asserts their leadership and gets to know the board individually and collectively.  A focus on value creation and understanding of the investor perspective is important in aligning the board and CEO around a strategic vision.  Investor relations can play a role here as a steward of the shareholder perspective.

The EgonZehnder CEO survey also indicates new CEOs sometimes don’t realize how important communications experience and skills will be in their new role.  The need to come up to speed quickly is something investors relations can support.  IROs are typically well experienced with message and Q&A development, rehearsing presentations and media training, so they can be pivotal in providing some coaching in these areas to strengthen a CEO’s presence.

IROs spend a lot of time with CEOs.  A solid relationship is important to the success of both.  By understanding that C-Suite changes are just as much about transitions as transformations, investor relations can contribute to stronger and more impactful individuals and organizations.

Lisa Ciota
Lead-IR Advisors, Inc.

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Replay: New Kid in Town

879 – that’s the number of CEO’s who have left their companies year-to-date August according to Challenger, Gray & Christmas’s monthly CEO turnover report.  This is a 15% increase versus the same prior year period, but roughly in-line with previous years.  Approximately 28% of these exits were retirements and another 10% reflect CEOs moving on for new opportunities at other companies according to the data.  Makes sense: with the economy good and labor market tight, why not exit while on top or seize new opportunities at different companies?

It’s typical to see 1,200 – 1,300 CEO exits in any given year according to the Challenger, Gray & Christmas data.  This is neither good, nor bad … its just a reality.  At some point, every company, board and investor relations officer is going to face a transition in the C-Suite – the new kid in town.  To that end, republished below is an earlier post on the topic of introducing a new CEO or CFO to the street.

New Kid in Town

February 21, 2018

There’s talk on the street; it sounds so familiar.
Great expectations, everybody’s watching you
                                                           New Kid in Town, Hotel California, Eagles, 1976

With the average tenure of 8 years for CEOs and 5 years for CFOs, it’s going to happen – there’ll be a new kid in town.  The new kid will need to be introduced to the street, expectations will need to be managed and everyone will be watching to see what happens.

C-suite tenure 2

Source: Korn Ferry Institute C-Suite Age & Tenure Study 2016

Of course, a lot depends on the situation.  Is it a planned transition?  What factors drove or precipitated the change? Is the new CEO or CFO an internal or external candidate?  What is their background? What are the company’s challenges or opportunities? What is investor sentiment like?  The answers to these questions will inform the introduction process.

If it was a planned transition, the business is doing well and the new leader is an internal candidate who is at least somewhat known by the street, then a “business as usual” approach may be fine.  But then again, when does that happen?

All new CEOs and CFOs – particularly external hires – need an acclimation period to understand the company’s issues and formulate a plan.  Generally, investors understand that so brief introductory calls focused on the new leader’s experience should be sufficient initially.

However, in more challenging environments or where activists are involved, investors may demand time with new leadership right away.  In such cases, it may be important for the lead independent director to make a statement or perhaps even meet with activists.  Carefully weigh the risks of having the new leader – particularly new CEOs – spend time listening to investor feedback early on. This could be beneficial for informing his/her thought process and strategic priorities.  It may also earn him/her early support if investors feel they’ve been heard.  Conversely, it can consume valuable time better spent developing a go-forward strategy.  In the end, investor sentiment should be one – but not the only – guidepost.

Throughout the initial transition, investor relations has – as always – an internal and external role. Internally, investor relations should provide the new leader a SWOT (strengths/weakness/opportunities/ threats) analysis identifying key risks from an investor perspective as well as background on sell side coverage, a profile of investor style and turnover plus a risk/opportunity assessment of top investors.  It’s also important to take the new leader’s pulse as to their experience, comfort and understanding of the investor community to optimize the new leader’s future investor interactions.

Externally, investor relations’ initial role is to highlight the new leader’s relevant experience and keep investor expectations at bay as the new leader’s strategic plans develop.  Of course, the new leader will need to engage on earnings, which may be before their strategies are fully formed.  Depending on the timing of earnings, the new leader should thoughtfully articulate key learnings, areas of focus and priorities without making premature promises or announcements.

By their third earnings calls, CFOs are often considered old hands.  However, at the same point, the typical new CEO is beginning a 2- to 3-year period filled with significant strategic moves.  Given the likely pace of change, there probably won’t be time for a formal CEO debut tour or investor day. Its important to be flexible during this time and explore different opportunities for investors to get to know the new CEO.  For example, hold webcasts in conjunction with strategic announcements to expose the CEO to investors in addition to participating in high-profile conferences and non-deal roadshows.  Once a significant portion of the change agenda is in play, consider hosting an investor day or other forum to outline the company’s transformational vision and financial targets.

When a new kid is in town, use it as an opportunity to reset the company’s narrative and investor relations priorities. Be flexible, be open and optimistic, because while the …

People you meet, they all seem to know you.
Even your old friends treat you like you’re something new.
New Kid in Town, Hotel California, Eagles, 1976

Lisa Ciota
Lead-IR Advisors, Inc.

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Final Stretch

It’s hard to believe.  We’re in the final stretch.  The conference committee I am on is putting the final touches on content and wrapping up last minute programming details for NIRI-Chicago’s annual investor relations workshop (see link below).  Hurray!

Right now, it’s all about the process – what needs to be done to ensure a successful event.  This got me to reflecting on an essay by Dan Wang of Gavekal on the importance of process knowledge.  Process knowledge is the hard-won know-how gained from experience and the foundation for future innovation.  I’m oversimplifying here but if you don’t have practical knowledge of how things are made, materials used and what works and why, how can you identify ways to improve or imagine new uses?

While Wang’s essay is about manufacturing and engineering, his essential message is very relevant to the execution of our upcoming conference.  Yes, there’s content development and speaker recruitment – all very important – but there’s also promotion, registration, F&B service, facilities management and security.  Different people handle different aspects and each process must be managed according to its own timeline.  But everything must be integrated and understanding each part, how it works and its role is key to successful execution.  Every year, we build on this know-how in executing the workshop.

Process knowledge is important in the investor relations world.  For example, when coordinating an investor day, a site visit or even an earnings release and webcast your credibility hinges on the basic blocking and tackling activities that ensure seamless execution.  Largely this means having the proper systems and processes in place, understanding their value and how they interact.

In the IR world, creating and improving upon these systems and processes – which generally revolve around content development and logistics – requires some concentrated reflection.  For example, the content development process should include an internal vetting and review process as well as a process to execute on format decisions (i.e., slides, video, product sampling, operation tours, etc.).  As for logistics, location may dictate processes surrounding the invite/RSVP process, transportation, security and the technologies to be used (i.e., video streaming, webcasting).

Once you’ve thought all this through, build out a template with the all the processes involved.  The template can then serve as a platform for execution, enable speedy adaption as conditions change and help identify opportunities to streamline or improve the next time around.

Lisa Ciota
Lead-IR Advisors, Inc.

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Thinking Ahead

How often do you see or hear of someone and wonder “What were they thinking?”, or some less gentile variation of that? Too often it seems that there was no thinking involved.

This, of course, got me to thinking … about a training session for current and future group leaders I helped lead over the summer. The purpose of my portion of this training was to demonstrate with my partners an approach these group leaders could adapt and use to teach their teams basic critical thinking skills.

Critical thinking is not negative thinking.  It’s a process of

actively and skillfully conceptualizing, applying, analyzing, synthesizing, and/or evaluating information gathered from, or generated by, observation, experience, reflection, reasoning or communication

Foundation for Critical Thinking

In other words, it’s about reflecting and evaluating information received to transform it into knowledge and understanding.

For this training session our challenge was to not get into the technical – indeed there are whole college curriculums surrounding the subject matter that we could have addressed – but rather engage participants’ “whole person” to recognize and understand key concepts and when, where and how these concepts are used in the real world.

Our demonstration integrated somatic learning and intentional questioning techniques that participants could bring back to their teams to foster critical thinking.  For example, we:

Hands iconTranslated key concepts into simple activities that participants could experience for themselves;

color celebrate iconEngaged participants in group exercises to illustrate how key concepts work in the real world;

color light iconStrategically asked open-ended, focused and integrative questions to encourage mindful reflection and evaluation.


This approach helped participants internalize key learnings because they were forced to think about the material more deeply than a recitation of facts and figures could achieve.  In addition, by modeling these techniques, participates came away with some tools to engage their own teams in generating better insights and decisions.

Lisa Ciota
Lead-IR Advisors, Inc.

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Virtual Meeting Reality

It was inevitable.  Whether its a routine and recurring process or an opportunity to interact or engage, technology can offer a solution.  That’s exactly what’s happening with corporate annual meetings.  In July 2018, Broadridge reported that it hosted 212 virtual annual meeting in the first half 2018, up 18% from the same period in 2017.  Virtual annual meetings can reduce costs and expand shareholder access.  No wonder more companies are doing them.

Yet, this growth has some large institutions and their advisors wringing their hands that investors will lose a key opportunity to directly engage with boards and management teams if annual meetings go virtual.  I also suspect some institutions worry boards may become less accountable to shareholders if not forced to look them in the eye.

As previously discussed, I believe this is really a question of form over substance.  Annual meetings are a formality; the end of a process.  The real substance of the matter is shareholder engagement.  Managements and boards should understand investor perspectives and engage with them on issues meaningful to shareholder value.  Today, investors have many tools to engage with companies beyond the annual meeting.

Nevertheless, I believe annual meetings – live, virtual or hybrid – should be conducted in a manner respectful of investors’ position as part owner.  To that end, a committee of institutional investors, public company representatives and advisors have developed some basic principles and best practices for virtual annual meetings[1], which are generally reasonable.  virtual annual meeting 3Not surprisingly, the committee places heavy emphasis on ensuring shareholders participating virtually have the same opportunities to present proposals, ask questions or make a statement as they would at a live meeting.  The committee fairly notes this objective should be a determinant of how the meeting is conducted and what technologies are used.

I further agree with the committee that boards should thoroughly weigh the pros and cons of a virtual meeting in view of their shareholders’ sentiment toward such meetings (some have strong opinions which may affect the proxy vote), the issues to be voted upon (is it a routine meeting or are there controversial proposals) and other potential issues of concern.  Boards should explain their rationale for the meeting format and communicate formal rules of conduct for the meeting, including outlining the Q&A process such as when questions will be accepted, and the time allotted in total as well as per shareholder.

I have a more skeptical view of the committee’s suggestion that companies consider making an archived replay of the meeting available.  By their very nature virtual meetings are more accessible and snippets may go viral, potentially giving dissidents a larger platform to voice their agenda.  Given that annual meetings are a formality and no news is typically announced, why take that risk?

The reality is the use of virtual annual meetings will continue to grow.  In this brave new world, companies need to ensure the technology and format provides for a fair and equitable process, while investors need to recognize that engagement is not an annual event linked solely to the proxy.

Lisa Ciota
Lead-IR Advisors, Inc.

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[1] Principles and Best Practices for Virtual Annual Shareowner Meetings, The Best Practices Committee For Shareowner Participation In Virtual Annual Meetings, May 2018

Loose Lips, Part II

Sometimes, I just don’t get it.  I’ve gone through compliance training multiple times; so have friends and colleagues.  It’s ubiquitous at public companies and is designed to educate employees, officers and the board about the company’s code of conduct, which, of course, everyone should also read.

Corporate codes of conduct encompass the legal guidelines and standards of ethical behavior expected of employees, officers and the board, and covers topics like workplace discrimination and harassment; corrupt practices; conflicts of interest; protecting confidential information and insider trading.

So, I was flabbergasted on the news that New York Congressman Chris Collins was indicted on insider trading charges.  This has absolutely nothing to do with politics, but everything do with a breach of his fiduciary responsibility to the company, his fellow directors and the company’s shareholders.

Congressman Collins sits on the board of Innate Immunotherapeutics.  This company’s code of conduct outlines its expectations about disclosure and use of information as well as insider trading. Regarding disclosure and use of information, Innate’s code of conduct states confidential information should not be used in a way which creates a personal benefit or benefits another party not entitled to make use of such information.  It further states confidential information should be kept confidential, and to ask if there is any doubt about what information is considered confidential.

Regarding insider trading, Innate’s code of conduct reminds that it’s a criminal offence to trade company shares while in possession of inside information, which is defined as information not yet publicly available but is expected to have a material effect on the company’s stock price.  The code of conduct then says this trading prohibition applies not only to employees, officers and directors but anyone else – including family and friends – who is given access to inside information.

This is pretty standard stuff.  It places no undue burden on, nor has unrealistic expectations of directors, officers or employees.  Further, the expectations outlined helps ensures those who follow it do not violate Rule 10b-5 of the SEC Act of 1934, which prohibits insider trading.

Yet, the Congressman’s loose lips tipped his son about a failed clinical drug trial before the news became public.  While the Congressman did not trade on this information, his son did and tipped his fiancé’s family, who also traded on the information.  As a director, he should have known better and should not have put his own family in such a position.

Some say insider trading is a victimless crime. That trading is essentially an exchange of information, so the very act of buying or selling is putting information (regardless of source) into the market, enhancing market efficiency.  When all trades are accompanied by a simultaneous news flash of who is trading and why, then I can accept that argument.

Insider trading is a breach of a director’s fiduciary responsibility to shareholders to keep confidential information confidential.  It’s a violation of the law, a company’s code of conduct and the trust of the company’s officers, employees and other directors.  In my view, it’s also crime against trust and the sense of fair play I believe necessary for the effective functioning of the financial markets.

Lisa Ciota
Lead-IR Advisors, Inc.

Join NIRI-Chicago at its annual Investor Relations Workshop – September 28, 2018Print

Frenkel, J. (2018, August 8). Insider Trading Charges Against Rep. Collins Reminiscent Of Martha Stewart Conviction. Forbes.
Frenkel, J. (2018, August 13). Collins’ Protestations of Innocence Defy Meritorious Insider Trading Laws. Forbes.

Loose Lips Sink Ships

It’s strange times indeed when SEC disclosure rules and Regulation Fair Disclosure (FD) near the top of the news cycle. It seems the markets, media and regulators are all a-twitter over Tesla’s (NASDAQ: TSLA) CEO Elon Musk’s Twitter:

Musk Tweet 8.7.2018

Musk is known to be something of provocateur and iconoclast in his communications.  The world of Twitter – and social media in general – is often chaotic.  Messages, regardless of their veracity, get whipsawed around like dust in a tornado.  So, what’s the big deal?

Well, Tesla is a public company with publicly traded stock.  For the appropriate valuation of companies and fair operation of the capital markets, there needs to be a degree of trust that when companies disclose material information they do so broadly (so interested parties can readily find the information) and such disclosures not be intentionally misleading or omit material facts that make the disclosure misleading.  These expectations are so important the SEC codified them in the Acts of 1934 and Reg FD.

When it comes to disclosure, what is considered material?  The courts have defined information as being material when:

There is substantial likelihood a reasonable investor would consider the
information important in making an investment decision or view it as
significantly altering the total mix of information available about a company.

Determining materiality is often a judgement call but there are a few bright lines, which include mergers, acquisitions, tender offers and changes in control or management. Musk’s nine-word Twitter message:

  • Was about a material transaction – taking a company private entails a tender offer and could, in effect, result in a change in control; and
  • Neither contained, nor coincided with the disclosure of, additional information explaining the terms, timing and financing of such a transaction.

The timing of such a disclosure is also a judgement call.  Technically, outside of the mandatory 10-Q and 10-K disclosures, there is no duty to disclose so long as the silence is not misleading, does not result in previous disclosures becoming materially false and the company and insiders do not trade on such information.  This allows major negotiations, transactions, research and development activities, etc. to proceed in confidence and secrecy until completion when it does need to be disclosed.

There’s also a question of whether Twitter is an appropriate vehicle for disclosing material information. Given that this Tweet caused substantial market disruption – enough that trading in Tesla’s stock was suspended for 92 minutes – it certainly seems that the news was broadly disseminated.  However, Twitter is not generally where investors (or reportedly Tesla’s board) are accustomed to source their news.

By its very nature, one Tweet on a material topic like this can rarely, if ever, contain enough information for a reasonable investor to make an informed investment decision.  This is a key reason why the Investor Relations world has been slow to adopt social media as a primary means to share news even though the SEC allows for it if a company has previously advised shareholders they may do such (Tesla advised such in 2013).  A best practice would be to issue a press release and/or file an 8-K near simultaneous to posting a Tweet and include in that Tweet a link to the more fulsome source.

Because of this Tweet, the SEC has made some calls to Tesla about this disclosure according to news reports and will likely make some more.  No doubt the media will hound sources to obtain leaks about the terms and financing of any potential transaction.  Speculators who trade on news flow will remain all revved up.

Loose lips – or more precisely, an itchy Twitter finger – may not have sunk this ship, but this is not an ideal scenario if the real goal (as Musk states) was to focus on operations and long-term growth while minimizing short-term volatility and distractions.

Lisa Ciota
Lead-IR Advisors, Inc.

Join NIRI-Chicago at its annual Investor Relations Workshop – September 28, 2018

It’s Personal, Redux

Last week the business world lost a giant. Sergio Marchionne, CEO of Fiat Chrysler Automotive,  chairman and CEO of Ferrari and FCA US, LLC and chairman of CNH Industrials and Maserti passed away due to complications from an undisclosed illness.  I join the thousands of others expressing their sympathies in his passing.

This news came as a surprise to many.  Indeed, Fiat Chrysler said it was unaware of the seriousness of Marchionne’s condition (Bloomberg, July 27, 2018), having been advised only days earlier that Marchionne’s would not be returning to work due to complications from shoulder surgery.  The situation reminded of the very delicate balance between respecting the personal privacy of a CEO and when disclosure is appropriate or necessary.

“A seriously ill CEO presents corporate boards with a range of complex questions about what to tell the public and when,” Doug Chia, the executive director of the Governance Center at the Conference Board told Bloomberg. “Frankly it’s a tricky situation, because there are medical privacy issues here and it’s a very personal thing,” Chia said.

To help guide you in such fraught situations, republished below is a previous post on this topic.


January 5, 2018

Shortly before the holidays, news of CSX’s CEO passing renewed the debate on CEO health disclosures.  My sympathies go out to his family, friends, associates and the people who looked to him for leadership.

Seeing the news reminded of my own decade-old experience with the passing of my former company’s CEO.  At the time, I was fortunate to work with outstanding leaders who created the best practice for communicating about a CEO’s health and death.

When it comes to the health of a CEO or any person seen as pivotal to company success, there are no specific SEC disclosure requirements. Indeed, there is no duty to disclose so long as that silence is not misleading or does not result in previous disclosures becoming materially false.  However, public companies are required to disclose known risks and uncertainties that may materially affect future results as well as the departure of executive management. A CEO’s inability to perform his/her duties – depending on the duration – can be perceived to fall under these requirements.  Accordingly, there is an underlying assumption that such news will be shared.

Now, the question of what to say, how to say it and when, is difficult no matter the circumstance.  Complicating matters are the very real personal relationships both inside and outside the company that make such communications potentially fraught with emotion.

Recognizing this, it’s useful to have a disclosure framework that considers:

  • the executive’s importance (both real and perceived) to the organization and its strategy;
  • the nature of the circumstances, the impact on the CEO’s ability to perform his/her duties and expected duration;
  • status of contingency or succession plans.

Be sure to seek out input and perspective from the board, senior management, legal and human resources as well as key external advisors as necessary.  Designate key spokesperson(s) and family liaisons.  Think about potential ongoing disclosure needs and the types of information or permissions that may be needed as the situation evolves.

In the end, these are very personal matters. Issues of the transparency and disclosure expected of a public company need to be balanced with kindness, honor and respect for the individual.

Lisa Ciota
Lead-IR Advisors, Inc.

(Reference: February 2009, Compliance Week,  Rules for Disclosing a CEO’s Unexpected Absence by Harvey Pitt, Founder, Kalorama Partners and former SEC Chairman)

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Block by Block

You know it’s a bubble when mainstream news media run stories about bitcoin profits paying for a wedding.  But, in all the cryptocurrencies hoopla, what is often overlooked is the blockchain technology underlying it.

What is blockchain? It’s a distributed ledger, or database, that captures transaction data across a public or private network with each node in the network holding an exact copy.  The data is encrypted as a “block,” “chained” to the records before and after it and is viewable by others in the network.  Further, it cannot be altered retroactively without impacting all subsequent data and raising red flags or requiring approval from the network.  The blockchain ledger can also include “smart contracts,” programmed conditions that can be automatically triggered if certain criteria are met.

Basically, blockchain is a sophisticated database technology.  It has a myriad of potential uses, some disruptive, others not so much.  Its core advantage is it enables information to be verified and value to be exchanged and recorded on a ledger without third-party authentication, thereby eliminating the need for intermediaries.

On the surface, it sounds like the capital markets are ripe for blockchain technology.  But, the reality is more complex.  There are legal-, regulatory-, and governance-related questions as well as practical matters with no easy answers.

Probably the largest non-starter is blockchain in its current iteration cannot enable efficient price discovery.  Nor can it handle the trading speed and volume exchanges do today.

Utilizing blockchain for back-office processes like clearing, depositary, custody and recordkeeping services is a potentially big opportunity.  Private blockchains can help consolidate multiple internal ledgers to make trade settlement more efficient. However, to maximize the technology’s effectiveness, the industry will need to establish uniform standards, processes and interfaces between and amongst the entities involved.  Since this will involve brokers, clearing houses, depositories, etc., sharing and enabling access to internal data and systems, there is understandable trepidation.  Today, there is minimal industry-wide dialogue on what the governance of a blockchain environment should look like.

Other hurdles to wider use of blockchain are legal and regulatory.  A key conundrum is does the digitization of assets (as it would in blockchain environment) change the rights, privileges and responsibilities of asset ownership.  For example, what happens to digital assets in a corporate bankruptcy? What about state escheatment laws? What happens if an asset holder forgets the secure key code to their digital wallet (in the current blockchain environment no one can unlock a digital wallet or change the key code)?  The S.E.C., Delaware and other states have and are exploring such issues, all of which are solvable, but it’s not a simple process.

So, you can exhale.  Blockchain may be coming but its adoption in the capital markets will initially be slow.  There’s still a lot to be learned from the pilots currently in place such as Broadridge’s use of blockchain for proxy voting and Overstock.com’s Series A preferred stock which trades in the over-the-counter market.  It will be interesting to watch.

Lisa Ciota
Lead-IR Advisors, Inc.