Student Hadeel Al Sharqawi’s outstanding research thesis on the implementation of Blockchain in the U.S. voting and stockholding systems wins her the IE White & Case End of Degree Prize for showcasing innovative analysis with critical insight into the future.
In 2015, world-renowned law firm White & Case partnered with IE University to launch the IE White & Case End of Degree Prize, a unique shared initiative that cultivates talent and promotes global education among the students in IE University’s Bachelor of Laws program.
One future lawyer is chosen for a scholarship, sponsored by the IE Foundation and White & Case, to study in a postgraduate law program.
This year’s winner is Hadeel Al Sharqawi, a graduate of the Dual Degree in Business Administration and Laws, for her exceptional research thesis “Reforming the U.S. Stockholding and Voting Systems” which has been published in the issue 3.20 of InDret magazine by Universitat Pompeu Fabra.
“Making sure corporate shareholders fairly exercise their political rights is crucial to the credibility of capital markets,” said Juan Manuel de Remedios, Executive Partner of White & Case in Spain. “The complexity and inefficiency of corporate America’s proxy system has been hotly debated in recent years, which Hadeel Al Sharqawi so eloquently addresses in her work as “pathologies.” She uses a precise diagnosis to clearly pinpoint the challenges in accepting the current scene, which is plagued by high costs, intricacy, and ambiguity, and frequently clashes with fundamental corporate principles. The way she aptly proportions the scope of the problem to the safety of available Blockchain technology solutions is fresh and on the right track—only time and regulators will tell.”
“In the meantime,” he said, “We must congratulate Hadeel for sharing the results of her comprehensive investigation, for her creative approach, and for her invaluable insight into the future.”
Aside from her award-winning final project, Hadeel—who was born in Jordan—has shown a strong dedication to law as an involved member of the IE University community throughout her five years of study. She talks with us about her innovative research thesis, her journey at IE University, and her exciting future plans.
Why did you decide to study law?
Aside from aspiring to become the next Harvey Specter (from the American TV series “Suits”), I never knew why I wanted to study law growing up; I just knew that it was my calling.
Now that I’ve graduated, I have a better idea. I’m fascinated by how abstract knowledge, practical problem solving, and human relations are inextricably linked. It’s like a puzzle to me: I like piecing together complex legal rules and doctrines, and combining them with other intellectual disciplines to reach a feasible conclusion. Achieving that end goal and seeing the finished product makes me feel accomplished. The human factor makes it even more rewarding, because it becomes lively and interactive. I think our ability to build relationships and trust with our peers, partners and clients is what makes lawyers immune to automation and robots.
Tell us about a highlight from your five years at IE University.
My journey at IE University has had so many high points, from law competitions to pro bono work, but if I had to narrow it down, one would be IE University’s unique comparative teaching methodology in its Bachelor of Laws program.
Exposing me to both civil and common law traditions made me appreciate the subject even more. Learning about the cultural phenomena and intellectual disciplines involved in various legal jurisdictions around the world, such as in France, Germany, England and Wales, and the U.S., opened my eyes to new perspectives and ways of thinking. It also increased my attention to detail, critical-thinking skills, and ability to compare the strengths and weaknesses of a given legal doctrine across different jurisdictions.
Another highlight was the unique advantage of the small class size at IE University, which lent a level of intimacy unmatched by other universities. It fostered both a professional and personal connection between students and professors that extends beyond the scope of the program. For example, my international criminal law professor noticed my passion for universal jurisdiction and assisted me in getting a rewarding internship with a Spanish NGO. Not only were these powerful connections within the IE University community highly motivating, but the internship itself proved invaluable: it gave me the opportunity to explore my interests early on in my studies; to apply learned knowledge outside the classroom; to develop my research skills; and to strengthen my legal writing.
What are you passionate about in your free time?
It seems that everyone is becoming a better cook in the coronavirus age, but I’ve always enjoyed trying new recipes from different countries—my favorite is Indian food—and learning about new flavors.
I’m also passionate about theater. When I was little, I was a lead in several plays, including some by Shakespeare and Khalil Gibran. Acting was a way for me to experiment with new characters, and it expanded my mind by allowing me to think outside of socially accepted behavior, beliefs, and values. It was challenging at times, but always thrilling.
Describe your final project.
In my final project, I analyze how the inefficiencies of the U.S. stockholding system impact shareholder voting, specifically for corporations listed on the New York Stock Exchange and registered under Delaware law. I then suggest overhauling the existing stockholding and voting systems by adopting a private permissioned Blockchain. Certainly, the paper intends to investigate how the implementation of Blockchain in the U.S. stockholding and voting systems could impact shareholder voting.
A brief historical overview of the U.S. stockholding system shows that an indirect holding system (“IHS”) replaced the pre-existing direct holding system because, in an era of climbing trade volumes, there were escalating costs/risks associated with the clearing and settlement of physical certificates (i.e. risk of losing certificates). When the IHS was introduced in the 1970s, a central securities depository and clearing agency emerged, known as the Depository and Trust Company (“DTC”). Its role is threefold: to be the record owner of these shares; to have physical possession of stock certificates in fungible bulk; and to clear and settle trades by transferring beneficial ownership of shares registered in book-entry form from sellers to buyers.
However, this structure made it impossible to determine who the owner of any given stock was; instead of saying “investor A” is the beneficial owner of stock certificate #1234, we say that they own one share from an interchangeable bulk held by DTC. This lack of transparency regarding share ownership together with the fact that beneficial owners no longer constituted record owners, caused corporations to lose communication with their owners.
Thus, a new mechanism known as proxy voting arose to accommodate indirect holding and revive communication between a corporation and its owners. Under proxy voting, voting rights pass through extensive voting chains: starting from DTC as the record owner, to brokers/banks and other types of intermediaries, all the way to beneficial owners. It’s easy to see how this complex voting mechanism is rife with pathologies carried by beneficial owners, such as overvoting, manipulation of untraceable shares for personal profit (i.e. through hedging), and the inability to exercise certain rights under corporate law due to being unable to determine how shares have been voted (i.e. appraisal claims).
This begs the question: has no one attempted to make shareholder voting more efficient, consequently resolving voting pathologies? Until now, only incremental changes have been made, since the voting system is built around untraceable shares.
Nevertheless, the financial market is at an interesting crossroad, where Blockchain could be a path toward direct holding. This would keep DTC from being the record owner and holding shares in untraceable bulk, instead the Blockchain would record a clear title chain for every unit of stock throughout the settlement cycle. That is, the corporation and other market players would be able to identify current and prior owners.
If Blockchain makes share ownership traceable, then corporations no longer need to pass voting rights to beneficial owners through a chain of intermediaries. Thus enabling direct voting by shareholders. By lowering operational complexity, we yield lower financial costs and fewer errors carried by shareholders, as well as mitigated/eliminated voting pathologies. Still, the proposed Blockchain relies on the resolution of technical design issues (i.e. resilience or security) and regulatory gaps (i.e. the current U.S. Securities and Exchange Commission rules preclude any alternative share provenance system). There are decisive factors that are often overlooked by Blockchain proponents.
Your investigative work is thorough and forward-thinking. What inspired you to look into this topic?
Researching this topic was a way to apply what I believe the study of law stands for, which I previously mentioned. Since the topic combines complex legal considerations pertaining to securities regulation and corporate law infused with FinTech, I was excited to combine these ideas in order to create a viable solution based on existing literature.
In addition, I was eager to dive into a new and increasingly relevant topic in both academia and the market itself. Through this research thesis, I wanted to contribute to an area that has great variation in the considerations offered by literature (in terms of extremity and outcomes). My objective was to capitalize on the available variation and develop a holistic, multi-angled perspective on how Blockchain stockholding and voting might work.
To that end, the proposed infrastructure extends beyond the basic framework offered by literature by linking Blockchain’s technological features, clearing and settlement processes, and voting logistics while comparing it to the pre-1970s direct and IHS.
This paper was also a way for me to apply the fundamental legal knowledge on U.S. securities and corporate law that I learned throughout my studies, and to expand upon the basic Blockchain skills that I had personally acquired. Furthermore, it was an opportunity to test critical skills: reading and interpreting U.S. case law and statutes/regulations, organizational skills in managing large volumes of information and documents, time management, etc.
Did you face any challenges during the writing process?
The biggest challenge was becoming more confident in my understanding of the considerations surrounding Blockchain. I became overwhelmed as I read more about Blockchain as a pure recordkeeping mechanism and in the context of stockholding and voting. I questioned myself throughout my research, but that ended up being extremely beneficial because it ensured that I continued learning and better understanding the topic.
Drafting a research thesis is stressful and time-consuming for any student, but even more so during my final year of university since I had to juggle that along with my required subjects, extra electives, being a class representative, and personal life changes.
That being said, I have no regrets. The entire experience was rewarding both professionally and personally. With all the ups and downs, it was positive overall and will certainly impact my future career as it tested my knowledge and skills.
Do you foresee any future research on the topic?
Definitely. The topic is still in its infancy, and calls for additional research to identify alternative strengths/weaknesses in Blockchain’s functionality as a stockholding and voting system; to propose different Blockchain infrastructures with factors yielding different outcomes/solutions; and to consolidate fundamentals relating to the field. Without these advancements, market players and regulators may be hesitant to adopt the technology given their lack of experience with it; high startup costs associated with adopting a new technology; the risk of arising technical design issues that may endanger the overall health of the financial market; and resistance from incumbents who may be displaced by it.
One pathway for future research could be analyzing the technical and legal impact of the decision by the Australian Securities Exchange (“ASX”) to replace its equity and settlement systems with Blockchain by 2021. Furthermore, a comparative law approach between U.S. and Australian securities law could be potentially valuable. Nevertheless, the general goal of such research would be to compare the ASX to a U.S. use case and transform its experience in terms of costs, risks, and benefits.
Plans can certainly change—either due to a shift in our viewpoints or unforeseen circumstances. The path forward is not to resist this change, but rather to be flexible and resilient enough to continue on to our final destination.
What are your plans after graduating? Which areas of law are you most interested in?
I’m about to start a two-year training program in order to sit for the Jordan BAR exam. Once I’m certified as a practicing lawyer in my home jurisdiction, I plan on becoming dual-qualified in England and Wales. Hopefully, this will open doors for practicing in major legal capitals and trade centers like London or Dubai. This might take a couple of years, but ultimately I would like to further my education in comparative law, contributing to an increasing supply of cross-border legal expertise and furthering my own international experiences.
I’m most attracted to the areas of securities law and international arbitration. On one hand, securities law would not only build upon the knowledge I acquired through my dual degree in business administration, but it would also stoke my growing curiosity about the digitization of financial markets sparked by my final project. On the other hand, practicing arbitration would accomplish all of that and better suit my international background. Arbitration also requires mastering the art of persuasion and exposes lawyers to various areas of law, which excites me.
In any case, I strongly believe that having a plan can direct us towards where we want to go, like a route to a destination. But plans can certainly change—due to a shift in our viewpoints or unforeseen circumstances. The path forward is not to resist this change, but rather to be flexible and resilient enough to continue on to our final destination. Succinctly put: all roads lead to Rome.