The COVID-19 pandemic acutely threatens the ability of stock corporations, associations and cooperatives to act and pass resolutions. This is because important decisions, such as approving the actions of the board of directors, appointing directors or amending the articles of association, can only be decided by the members at a meeting. To maintain a quorum despite meeting bans and contact restrictions, organizations must find new ways to enable member voting.
Against this backdrop, digital assemblies offer an effective tool to enable legally compliant decision-making in a more flexible and cost-efficient manner. But what is necessary to successfully conduct a virtual general meeting? What requirements must be met? And how can companies and public institutions take advantage of digital voting beyond Corona time?
Observe legal and technical requirements
Two central perspectives must be taken into account for the successful implementation of a digital general meeting: On the one hand, the legal foundations must be created to pass resolutions in compliance with the law and to protect them against challenges. On the other hand, suitable technical platforms must be made available to ensure compliance and the proper conduct of the meeting. These two perspectives are mutually dependent and should therefore be coordinated with the involvement of both disciplines.
From a legal perspective, this first concerns the permissibility of passing resolutions via electronic communication media. To this end, the rules laid down in the articles of association must be examined and, if necessary, supplemented. In Germany, the hurdles for holding a virtual general meeting were significantly lowered in the course of the law to mitigate the COVID-19 consequences. Accordingly, no amendments to the Articles of Association are necessary – at least for the period of validity of the regulation. In order to create a basis for virtual meetings beyond this period, a corresponding amendment to the Articles of Association is required, which must be submitted to the registration court.
Real-time communication and electronic decision-making
In addition to these legal requirements, the necessary technical platforms must also be provided. On the one hand, this includes a communication option between the meeting chair and the participants in real time via (video) conference services such as Zoom or Microsoft Teams. They should be designed in such a way that every participant has the opportunity to ask questions or express his or her opinion on a resolution item during the meeting. On the other hand, the decision-making process must also be mapped using suitable solutions. The legislator does not make any specific specifications here. However, depending on the type of voting (e.g., secret ballots) and the number of participants, professional e-voting solutions should be used to prevent the passing of resolutions from being contested.
Manipulation security through the blockchain
Against the backdrop of the requirements described above, blockchain-based voting solutions offer particular advantages in terms of data and manipulation security of the voting process. For example, decentralized processing on the blockchain and the use of cryptographic procedures prevent voting results from being changed or manipulated after the resolution has been passed. At the same time, both the results and the voting procedures can be viewed transparently by all participants, while the voting itself is completely anonymous. Finally, smart contracts ensure that only participants with voting rights can take part in the vote.
The four phases of the digital general meeting
Following the recommendations described above, four typical steps can be derived on the way to a successful virtual assembly. These are based on the use of an electronic voting solution, such as DecentraVote, and may differ depending on the voting software used:
1. Invitation of the members & announcement of the resolution items
Even in the case of virtual general meetings, participants must be invited in good time in accordance with the formalities and deadlines laid down in the Articles of Association and informed about the procedure for participation and the exercise of membership rights.
In this context, the members receive an access code with the invitation by e-mail, with which they can register for the meeting. The planned resolution items must also be announced in the course of the invitation. The members can only make amendments to these during the meeting itself.
2. Accreditation of participants & delegation of proxies
In order to actively exercise their voting rights in the virtual meeting, registered members must be accredited in advance of the meeting. In the process, the system checks whether the accreditation originates from a registered user and assigns a voting right to this user. Users who do not wish to attend the general meeting have the option of assigning their voting rights to another participant. However, this voting proxy must be in writing and must therefore be recorded in the system by the Executive Board.
3. Conduct of voting & counting of votes cast
The meeting itself is opened by the chairman of the meeting and conducted in accordance with the set agenda. In accordance with their right to speak and be informed, the participants have the opportunity to ask questions or make general comments. In the case of a video conference, this is possible either via request to speak or via chat exchange. In the event of a large number of participants, the Executive Board can request questions and speeches in advance and then record them during certain specified periods during the meeting. Voting and counting, on the other hand, takes place in the voting solution. There, votes are cast in encrypted form, stored and only decrypted when the votes are counted. This prevents intermediate results from becoming known before the end of the vote and influencing the voting behavior of the other participants.
4. Creation of the transcript & linkage to transactions on the blockchain.
Following the meeting, the resolutions adopted must be documented. In principle, the same documentation requirements apply as for conventional meetings. In the case of amendments to the articles of association or elections to the board of directors, these must be submitted to the competent registry court. A list of participants and the minutes of the general meeting with the relevant resolutions are required. The documents required for this, such as a list of participants and an overview of the voting results, can be exported directly from the voting solution. Advanced cryptographic procedures (zero-knowledge proofs) ensure that no subsequent assignment of participants to voting results is possible in the case of anonymous voting.
Conclusion & Outlook
If the procedure outlined here is followed, virtual meetings enable resolutions to be passed in a legally secure and efficient manner, irrespective of meeting prohibitions and local restrictions. For successful implementation, however, associations and cooperatives should consider a number of success factors. In addition to sufficient lead time to provide the technical and legal requirements for a virtual meeting, these include intensive accompanying communication and technical support for members before and during the meeting. Furthermore, despite or precisely because of the physical distance between the participants, sufficient space for exchange and discussion should be planned and technically enabled within the framework of the meeting. If these requirements are met, digital general meetings offer an attractive alternative to time-consuming and costly on-site events, even beyond the Corona pandemic.
Author: Dr. Zoltán Fazekas, iteratec GmbH