Perspective of blockchain technology application in corporate governance: Recent trands

The subject of the present paper is the perspective of blockchain technology application based on the experience of the Russian and foreign companies, ﬁnancial institutions, and public authorities. The purpose of the article is to study trends, identify areas of application, and analyze the risks and beneﬁts of blockchain technology application in corporate governance. The author used the methods of generalization, synthesis, comparative analysis of the approaches applied to determine the role played by blockchain in corporate governance, studied appropriate recent scientiﬁc publications, and also conducted the comparative analysis of the corporate governance goals and key characteristics of the above technology. The author has exhaustively analyzed the prospects of blockchain technology implementation in corporate governance taking into account the spread of the COVID-19 pandemic, which forms the novelty of the present paper. The author proposes to follow the below recommendations pertaining to certain issues of implementing blockchain technology into entity’s operations: to include the issue of suitability of blockchain technology integration into the entity’s operations in the meeting of the Board of Directors’ agenda, develop and approve at the Board level in-house documents to regulate the technology application within the entity as well as the strategy of its using to be followed by its integration into the entity’s general business strategy, approve the entity’s risk-appetite to use the technology within the frameworks of the overall entity’s risk management strategy, analyze the impact it may cause on the entity’s activities at the Board level and also ensure improving the employees’ training and competencies with respect to using blockchain technology. The author concludes that nowadays blockchain technology will be most intensively used in areas where it is a more effective alternative to existing systems in their current state. The conclusions and results obtained may be used in the course of developing Russian corporate governance practice as well as in the analytical and practical work performed by the public authorities and the business community.


Introduction
As the COVID-19 pandemic caused the world community to adjust to new challenges in 2020, digital technologies were used more actively in corporate governance. Accelerated rates of their introduction, including blockchain based, were determined by the challenges of preventing infection spread and necessity of business continuity maintenance together with entity's effective interaction with all stakeholders.
In practice use of new technologies is intended to eliminate uncertainties in some of the entity's potential results. A measurable competitive advantage will be awarded to those who pioneers implementing such technologies. Therefore, the key entity's aim is to change and adjust to the new market realities.
The new technologies have a significant ability to change entity's traditional business models and also suggest solutions to any matter arising in the area of corporate governance. The quicker the board of directors improves their level of understanding of the advanced technological processes, associated risks, their potential impact on the entity's operations and, in general, on the economy, the better it will be ready to develop the business strategy which meets the modern challenges and also to control such strategy implementation.

Main blockchain applications
Blockchain is a decentralized data base, cryptographically defended and intended for storage and confirmation of the information reliability. Essentially, this digital distributed ledger contains a timestamp ledger of the transactions, which were recorded by a peer-to-peer 3 computer network [3]. Blockchain has the potential to improve efficiency of the transactions and assets recording and allows for creating certainty of the rights, obligations and origin of the records, which in its turn add possibility to analyze the economic assumptions of the transactions made. 4 The key benefits of blockchain are based on interest between the transacting parties to raise the level of trust, decrease the number of frauds and transactions time as well as to exclude the effect which the corruption and human factors may have on decision making.
Decentralized coordination of individual transactions which does not need a centralized service to check and store information is possible due to technology of inseparable blocks and required confirmation by all users of a distributed chain of blocks, while altering the ledger retrospectively as well as recording transaction more than once is impossible. Inalterability of technology to keying and external effects allows to state the benefits blockchain technology has in comparison to the traditional data bases. In addition, as the data about the transactions processed appear on all ledgers there is no need for any mediators to confirm reliability of the transactions [4]. At the same time, massive implementation of technology currently has certain limitations such as high power consumption requirements, regulatory aspects and certification, scalability, management, audit of a blockchain system, confidentiality of the data used, no trust between the system participants, users' AF/CA/CG/RD(2018)1/REV1&docLanguage=En (accessed on 15.02.2021). 3 A peer-to-peer network means the existence of equal rights for access to information in the network and the absence of any participant in a computer network with unique rights to administer information in the network. 4 Institute of Chartered Accountants in England and Wales IT Faculty. Blockchain and the future of accountancy. Р. 1. URL: https://www.icaew.com/-/media/corporate/files/technical/ information-technology/thought-leadership/blockchain-andthe-future-of-accountancy.ashx (accessed on 12.02.2021).
identification, high cost of implementation and return, incompatibility of different blockchain systems, slow transactions processing, personnel search and training.
It was in 2008 when blockchain technology appeared on the market 2008 [4] as a tool to confirm the title right to a virtual currency, the so-called bitcoin. Currently, business models based on blockchain technology are tested in different sectors of economy (public health, agriculture, power, public administration, etc.). The most commonly used spheres are as follows: • virtual currencies; • digital records storage; • digital assets exchange; • certification of legally meaningful actions; • automated smart-contracts execution [5]; • e-voting arrangement; • decentralized autonomous organizations (DAOs) [6,7]. 5 In accordance with the federal project "Digital Technologies" of the national project "Digital Economy", blockchain (distributed ledger) relates to one out of nine pivotal digital technologies that are required to ensure technological independence of the Russian Federation and technological development of Russian companies. Currently, its use is under active testing. For example, starting from 2016 the first certified in Russia blockchain network "Masterchain" 6 which uses the national instruments of cryptographic defense of information is being developed. In the late 2020, the first Russian digital bank guarantee was issued on the platform launched by PJSC "VTB" for PJSC "MTS". 7 During COVID-19 pandemic Federal Tax Service of Russia launched a blockchain platform to issue interest free credits to small and medium businesses. 8 The first Russian issuer of obligations to be settled using blockchain technology was PJSC "MegaFon". National Settlement Depository (NSD) provided a platform to issue ruble -denominated obligations of the company to the amount of RUB 500 million, which were organized and bought by JSC "Raiffeizenbank". The offering of the obligations was approved by the Board of Directors of PJSC "MegaFon". 9 In the nearest, the implementation of technology into the economic life of the state and entities will be continued which allows to perform a comprehensive assessment of the results of blockchain application in corporate governance.
According to Gartner blockchain is going to generate $ 3.1 trillion in new business value by 2030, but with the technology set to be ready for more mainstream adoption through 2023, 10 organizations should be exploring the technology already now. This case is especially actual because large multinational corporations and digital giants are looking to capture wider market shares by implementing blockchain components like specifically distributed ledger technology to reinforce a centralized approach to business.
The range of possible blockchain technology application in practice is evidently expanding due to the development of new technologies (computer-assisted instruction, artificial intelligence, robotics, Internet of things, etc.). One believes that its application may be appropriate in cases of no trust between the parties, transaction costs are to be decreased and the ledger containing the records of all transactions occurred is maintained. 11 Thus, the use of technology to achieve the entity's goals and tasks is a new field calling for further analysis and study.

Searching for balance between the benefits and risks of blockchain technology
In present times reliability and accuracy of the information and the data depend not only on the technological changes but also on the new mechanisms of trust [8] in an economic system. 12 Blockchain 9 MegaFon, NSD and Raiffeisenbank completed the first transaction to place ruble bonds on the blockchain. URL: https://corp.megafon.ru/press/news/federalnye_ novosti/20171002-0934.html (accessed on 11.02.2021). 10 Gartner. URL: https://www.gartner.com/en/newsroom/ press-releases/2019-07-03-gartner-predicts-90-of-currententerprise-blockchain (accessed on 12.02.2021). 11 ICAEW IT Faculty Blockchain and the future of accountancy. Р. 9. URL: https://www.icaew.com/-/media/corporate/files/technical/ information-technology/thought-leadership/blockchain-and-thefuture-of-accountancy.ashx (accessed on 03.02.2021). 12 OECD. G20/OECD Principles of corporate governance. Р. 8. URL: https://www.oecd-ilibrary.org/docserver/9789264252035ru.pdf?expires=1566227217&id=id&accname=guest&checksu has the potential to be an effective tool to exercise effective collecting, storage, recording and transfer of information and the data assuming that potential value of technology considerably depends on the security advantages offered to each user, the entities are required to definitely understand both the advantages and the risks associated with blockchain technology ( Table 1).
A report presented to the World Economic Forum depicts five components required to ensure security of blockchain network. Reliable blockchain must be: • implemented or maintained by the deployment service; • created on the base of the consensus protocol; • confirmed in a distributed ledger by network activators; • cryptographically protected; • maintained by a developers' community. It is considered unreliable where a network lacks the above control mechanisms may be operated with interruptions and fails to ensure sufficient defense to digital assets. 13 Hence it is strategically important to regularly include the blockchain technology matters in the agenda of Board meetings. This will allow the entities to proactively respond to any changes in the economy, measure their market competitiveness and adjust their operations, where required.
In this case the Directors and top management have to consider potential risks associated with the business strategy developed and take adequate control measures before making decision about application of the technology. 14 Otherwise, the economic effect of such technology implementation may be a negative one.

Key directions of blockchain technology application in corporate governance
Blockchain technology creates additional opportunities for transforming the current business processes in the entities as it allows to decrease the number of centralized mediators, improve efficiency and create m=6B 41575E 2752CE 29BD 7C 4E 65A675023F (accessed on 02.02.2021). 13 WEF. URL: https://www.weforum.org/agenda/2020/06/ evolution-of-blockchain-reliability-and-digital-assetprotection (accessed on 09.01.2021). 14 Deloitte. Blockchain risk management -risk functions need to play an active role in shaping blockchain strategy. Р. 4. URL: https://www2.deloitte.com/content/dam/Deloitte/ us/Documents/financial-services/us-fsi-blockchain-riskmanagement.pdf (accessed on 03.02.2021). unmodified transactions ledger. As the environment is created to offer to stakeholders reliable and accurate information and the data which are presented to them, technology is capable of improving quality of corporate governance, thus assisting the entities to reach more transparency [9] and be open for interaction with different stakeholders.
The key advantages of blockchain technology application in corporate governance are the following characteristics which are critical for ensuring reliability of the ledger ( Table 2).
It appears that revision and adding the corporate governance standards is an ongoing process. OECD believes that orientation to the corporate governance goals may be the useful guide to form approaches towards regulation and adaptation of new technologies, in particular, blockchain technology and compares the key goals of corporate governance against its main features ( Table 3).
Considering the above approach, one may conclude that the main prospects of blockchain implementation currently are related to the following areas of corporate governance: • e-voting on the agenda; • conduct of general meetings of the shareholders; • registration of securities issue in a distributed ledger and keeping the shareholders' register; • accounting and bookkeeping, audit in the realtime mode; • using smart-contracts.

E-voting on the agenda
Together with the existing technologies blockchain may be used to for e-voting (by the shareholder, member of the Directors' Board, Management, Committee, etc.) as it allows to identify a participant in his absence and verify the declaration of his or her will. Its use for the purposes of e-voting as a new corporate governance tool demonstrates a high potential and promotes effective solutions in the area of storage and verification of the voting results,  decreasing possibility for fraudulent activities [10], and also accelerates decision making process [11]. In addition, benefits arising from e-voting may foster more active and intensive involvement of the shareholders into corporate governance procedures. 15 CSD Working Group on Distributed Ledger Technologies (DLT), which is a developer of products based on distributed ledger technology, announced its vision of the stages of preparing and conduct of e-voting on the agendas similar in most countries, which may be applied by the entities ( Table 4).
In 2001 IT-company Inforte Corporation (USA) conducted the first in the world GMS with a possible 15 Blockchain as a tool for corporate governance. URL: https:// www.cygnetise.com/blog/blockchain-as-a-tool-for-corporategovernance (accessed on 04.02.2021). e-voting of the shareholders [12]. In 2016 as blockchain platform was implemented to ensure for the shareholders of the entities registered by Nasdaq Tallinn AS possible e-voting at GMS. 16 Here in Russia e-voting is becoming ever more popular instrument for the parties to declare their will. Its application is recommended by the Corporate Governance Rules of the Bank of Russia 17 and Moscow Exchange Listing Rules. 18 As to this possibility, it is prescribed by the 16 e-Residency to support Nasdaq in transforming shareholder participation. URL: https://e-estonia.com/e-residency-tosupport-nasdaq-in-transforming-shareholder-participation (accessed on 02.02.2021). 17   Russian legislation which requires it to be stated in the entity's Articles of Association. 19 In Russia the GMS e-voting service 20 application on blockchain platform is provided by National Settlement Depository (NSD). In 2020 NSD was the first Russian   Clients, qty Electronic voting, qty service allows the issuers to ensure electronic voting through the central depositary site via the Internet network and the securities' holders not only virtually participate in the shareholders' meetings conducted in the physical meeting form but also vote at the absentee meetings. 21 At the same time, one should note here that electronic voting is possible and the result of using innovative products will not be compromised without blockchain application. 22 In 2020, during the coronavirus pandemic a considerable increase in e-voting was triggered by the legislation which permitted the Russian entities to conduct GMS in the absentee voting form irrespective of the agenda. 23 Here one should take into account that such increase in the above practice [PJSC Group LSR, 24 PJSC Inter RAO, 25 PJSC Rostelecom, 26 JSC ALROSA (PJSC), 27 etc.] was a consequence of the requirement of the participants of corporate relations rather than a consequence of legal changes, which is demonstrated by the following charts of GMS frequency (Fig. 1, 2).
Thus, e-voting has become a tool which is used more and more often as it allows for declaring the will of the parties in the corporate environment. Modern technologies make it possible to conduct GMS, which does not require integration in blockchain technology. authorities, in which state more than 66% of the Fortune 500 companies are registered, 28 authorized the annual general meetings of shareholders (hereinafter, AGM) both in the virtual form or in the form of virtual presence of the shareholders jointly with their physical presence 29 (the so-called hybrid approach). In 2016, Jimmy Choo conducted the first in the world virtual AGM among the companies listed at London Stock Exchange. 30 A similar approach is being publicly discussed in the Russian Federation to allow holding a GMS in the virtual form without the definition of the place of conduct and with the use of information and communicating technologies. 31 Virtual GMSs go beyond the scope of simple electronic voting and make it possible to hold the meeting without joint physical presence of shareholders gathered in one place [11]. Such meetings are held online using audio/video transmission in which the shareholders participate via the Internet. The possible benefits of the virtual GMS conducted on blockchain platform are the decrease of the security issuer's costs for the meeting conduct and shareholders participation, increased number of the participating shareholders, improved decision making in the decentralized environment, storage of the meeting data in a cryptographic electronic form, etc. In this context the key matters include the legal possibility to hold a GMS remotely, technical possibility of their arrangement and the will of shareholders to transfer to such format of communication with the entity. In addition, it is required to compare the costs related to the development, implementation and maintenance of the technology against current and future expenses of the entity.

Holding general meetings of shareholders
The the US companies to adhere to the Principles and Best Practices in this sphere, as presented below ( Table 5).
Despite increased technological possibilities of holding virtual events, the need in the shareholders and other stakeholders' physical presence in the course of general meetings of shareholders (GMSs) has not decreased. This may be driven by the following factors. First, for most shareholders' meetings allows to personally see management of the entity, assess its performance, and discuss the topical issues. As to the issuer, this is a perfect chance to understand shareholders and know their needs and expectations. Second, there are concerns that GMSs, when held virtually, will hamper the entities to decide on difficult corporate matters and also that the entities will find it far more difficult to properly run the meeting [13]. Third, there is a possibility that such format makes it possible for the entity's management to moderate the incoming questions and shareholders' speeches as they like. 32 And, fourth, minority shareholders may find themselves in a disadvantaged position if compared to majority shareholders. As such form of conducting the meeting is applied the process of making a decision in the course of cumulative voting for directors' appointment is evidently more difficult for those shareholders who wish 32 The pros and cons of virtual shareholder meetings. 2018. URL: https://finprofiles.com/news/index.php/2018/10/22/thepros-and-cons-of-virtual-shareholder-meetings (accessed on 01.02.2021). and have a possibility to elect their representatives at the board, because they are unaware of the quorum and thus the resulting allocation of the votes between several candidates. Therefore, there is an opinion that currently virtual annual meetings may be only an addition to the traditionally held meetings with joint presence of the shareholders. 33 There is an interesting fact that up until recently virtual annual meetings were permitted in 30 states of the UAS (Minnesota, Pennsylvania, Texas, etc.) and in 41 states (New Jersey, Connecticut, etc.) the hybrid approach was used, while in eight states (Idaho, New York, etc.) only the physical presence format was allowed. 34   issuer. The Commission recommended the entities which intend to conduct a virtual or hybrid meeting of the shareholders to early notify the shareholders and other stakeholders about such plans and also provide clear guidance as to the meeting logistics, including the remote access to be ensured for the shareholders, their participation and voting. 35 In addition, under the pandemic conditions several states (New Jersey, Georgia, Connecticut, and New York) allowed to conduct annual general meetings but only in the virtual format. 36  Broadridge, a leading provider of virtual general meeting services in the USA, the number of such meetings grew 7-fold (from 125 reaching 860) only in the first half of 2020. 37 So, comparison between different virtual annual meetings formats is of practical importance ( Table 6).
As to corporate governance aspect it is noteworthy that those entities which use the virtual meetings format demonstrate structures and governance media/files/corporate/publications/2020/03/managingcovid-19-virtual-annual-shareholder-meetings.pdf (accessed on 01.02.2021).  practices comparative to those of the entities which do not use. 38

registration of the securities issue in the distributed ledger and shareholders register keeping
Application of blockchain technology to record the title rights of the securities issued may ensure the accurate and proper recording of the shareholders. In addition, this technology allows to decrease such shares trading expenses and ensures a transparent transfer of the title right from one holder to another in the real time mode.
In most countries the shareholders' registers are kept by third parties, the registrars. 39 This technology allows minimizing the registrar's role as a mediator and also the entity's expenses related to register keeping and at the same time improves the level of trust between the issuer and the shareholder. However, if keeping the register is required by the legislation to be performed by registrars, i. e., the mediators, and not by the entities from the economic point of view application of blockchain technology is doubtful as in this case we can speak only about electronic document turnover which may be performed without use of this technology.
It is noteworthy that on the Russian market the Titan. TAS infrastructure system is being actively developed on the basis of blockchain platform, which automates the registrars' operations related to processing the documents accepted by the transfer agent with the aim to integrate the register keeping systems of the recording institutions (subject to licensing by the State). The above system aims to provide unified electronic services to legal entities and individuals. As at the 31 st of March, 2020, all large registrars in Russia with the total clients number more than 68% of the securities market are connected to the system. 40 In the scientific society there is an opinion that registration of securities issues in the distributed ledger, which as a consequence improves transparency of the entity's operations, on the one hand, may increase the role played by the shareholders in corporate governance. On the other hand, it may result in certain constrains for the board to perform their strategical and governance functions. Such format of registration may potentially improve shareholders and other interested parties awareness 41 about the entity's operations as access to respective information may be obtained in the real time mode. However, where shareholders or other interested parties lack necessary professional knowledge a situation may occur when misunderstanding of current business processes will result in their unreasonable wariness and possible volatility on the stock markets. In addition, irrespective of the selected type of the distributed ledger, registration of the entity's securities issue requires additional expenses for employees' training [10], and also change in corporate culture.

realtime accounting and auditing
Currently, there are discussions underway concerning a possible transfer of the entities to accounting using blockchain technology and placing all business operations on distributed ledgers.
Such approach will supposedly facilitate decreasing accounting costs, improve the internal controls and audit of the entity by way of ensuring the auditors access to the ledger and possibly minimizing the human factor and fraudulent actions of employees in the real time mode. Some experts point out that in the future thanks to blockchain technology a set of digital keys may be given to external auditors to ensure their unprecedented access to the information about all transactions. Also the entities may conduct internal audit, improve the internal controls and analyze information in the real time mode. 42 Provided they will establish no restrictions on the access to the ledger data, the above information will potentially become available for all interested parties having seriously changed their situation [14]. Herewith at least requires availability 41 Here the level of entity's operations transparency largely depends on readiness of the securities issuer to produce a large volume of information for the investors which exceeds the required by the legislation volume. 42 Chartered Professional Accountants of Canada (CPA Canada). Technological disruption of capital markets and reporting? An introduction to blockchain. 2016. Р. 16. URL: https:// www.cpacanada.ca/en/business-and-accounting-resources/ other-general-business-topics/information-managementand-technology/publications/introduction-to-blockchaintechnology (accessed on 07.02.2021). of the approved policies in the entity which are in compliance with the national statutory legislation, as it regulates access to confidential information which may be inappropriately used.
One should take into account that blockchain is one of many technologies capable of raising the level of transparency and trust between the stakeholders and also automate certain types of operations. At the same time, recording of transactions in blockchain not always may ensure evidence required for the purposes of audit. If the transaction recorded is based on the unreliable data, it will be impossible to address the problem through the technology. As previously the involvement of an expert and his professional opinion on the analyzed financial statements will be necessary (records and transactions may be unauthorized, fraudulent or illegal, performed between the related parties, have relation to supplementary agreements which are registered outside the blockchain or classified in the financial statements with mistakes). 43 In addition, the technology's inability of transaction backdating does not prevent the employees from opportunist behavior and the entity from shadow accounting [10]. Thus, taking into account high current cost of technology implementation and potential risks, blockchain application in the entity requires additional consideration.
As more and more entities study the use of closed or open block chains, the auditors should analyze potential impact the blockchain technology may have on audit as a new source of financial statements information. Also it will be required to assess the accounting policies applied to digital assets and liabilities, which currently still remain out of the scope of International Financial Reporting Standards (IFRS) and GAAP (USA). It is necessary to consider not only how to effectively adapt the audit procedures in order to use of blockchain benefits but also how to minimize the increasing risks.
costs from the perspective of ownership separation from control (principal-agent problem), propose to consider the entity as a population of contracts between the parties [16]. The increased digitalization of the economy enhances the problem of asymmetric information between the parties of the contracts. Generally, it is minimized by the search of informed agents (financial mediators, managers, etc.), or through the development of technologies which decrease uncertainty and increase knowledge of the economic subjects [17]. At the same time different interests of the stakeholders, irregular distribution of information (data) between them and other factors also may result in technological inequality or innovative asymmetry. 44 Currently the so-called smart contracts gain popularity in the economy [18], which if based on a blockchain technology, may resolve the above issues and decrease transaction-related costs. Such contracts represent a computer program which is a fragment of a code in a code chains. Where the predetermined conditions are met a respective clause of the contract is automatically performed. In addition, irrespective of other codes this one is embedded in the chain of the blocks rather than on the server, which makes even a technical deviation from the contract terms impossible. 45 Thus, the blockchain technology makes it possible to drastically change approaches towards control over the entity's operation by the stakeholders and also brings a lot of questions including transformation of the entity's operations.
Despite considerable benefits of smart contracts (speed and updates in the real time mode, secure conduct of transactions, decreasing the risk of contract nonperformance, etc.) they also pose serious risks (errors in the program code, high implementation costs, uncertain status of legal responsibilities of the parties to the contract, information security risks, etc.). Taking into account the above factors, their analysis and consideration become more important. For example, EY launched the Smart Contract Analyzer service which makes 44  it possible to track smart contracts and tokens on the subject of known security threats within the frameworks of the Ethereum platform both before and after they become available in the system. 46 The Directors and Management of the entity are required to clearly understand the consequences of their use and take adequate and proper measures bearing in mind continuous growth of their use in practice [5].