Student Hadeel Al Sharqawi wins the White & Case Award
Student Hadeel Al Sharqawi receives the IE White & Case End of Degree Prize for her exceptional research thesis on the implementation of blockchain in the U.S. stockholding and voting systems, an innovative research with an invaluable insight into the future.
Five years ago, White & Case, one of the world’s top law firms, and IE University, signed an agreement to create the first “IE White & Case End of Degree Prize”, a result of a joint commitment of both institutions to foster talent and a culture of excellence among law students, who will be leading the legal counsel sector in the near future. The winner receives a scholarship funded jointly by the IE Foundation and White & Case to study a postgraduate program.
This year the winner of the White & Case prize is Hadeel Al Sharqawi, graduated student of the Dual Degree in Law and Business Administration, who presented an exceptional research theses entitled “Reforming the US Stockholding and Voting Systems”, which has been published in the issue 3.20 of InDret magazine by Universitat Pompeu Fabra.
“Ensuring a fair exercise by corporate shareholders of their political rights is an issue of the utmost importance which lies at the heart of the credibility itself of capital markets. Much has been debated in the course of the last ten decades about the complexity of corporate America’s proxy system and its inefficiencies, which Hadeel Alsharqawi brilliantly addresses in her work as “pathologies”. Based on an accurate diagnosis, the student dives with precision and clarity into the difficulties attached to accepting the present panorama involving excessive costs, complexity and an uncertainty, which frequently collides with essential corporate principles. Her fresh approach judiciously proportioning the dimension of the problem to the safety attached to available Blockchain technology solutions is compelling and stands out as most likely pointing in the right direction. Time and regulators will confirm. In the meantime, we must congratulate Hadeel for sharing with us the results of her thorough investigative work, for her innovative approach and for her invaluable insight into the future,” said Juan Manuel de Remedios, Executive Partner of White & Case in Spain.
Through her exceptional final project and her five-year student life at IE, Hadeel, who was born in Jordan, has demonstrated a clear vocation and passion for law, as she has always been actively involved and a member of the IE Community. Learn more about her journey and final research project.
Why did you decide to pursue law?
As a teenager I never really gave it a second thought about why I wanted to study law; I simply felt as though it was my calling (and perhaps I was motivated by the thought of becoming the next Harvey Spector as in the American TV series, Suits).
Now as a graduate, the reason for pursuing law is clear. I am fascinated by the seamless marriage between practical problem solving, abstract knowledge, and human relations. I enjoy piecing together complex legal doctrines and rules, infused with other intellectual disciplines, to reach a workable solution. It gives me a satisfaction, a feeling of accomplishment that is similar to the one we felt as kids when finally piecing together difficult puzzles or building large Lego blocks. Of course, the human factor makes this challenging task even more rewarding because it makes it lively, interactive, and vibrant. In my view, our ability to make connections and build trust with our associate peers, partners, and clients is what makes us, lawyers, irreplaceable by robots.
What do you highlight from the five-year experience studying at IE University?
There are so many highlights from my journey at IE University, including law competitions and pro bono work – but if I were to describe my top two highlights I would say that:
IE University’s unique comparative methodology for teaching its Bachelor of Laws increased my affinity to the subject by exposing me to, both, Civil and Common law traditions. As I learned about the social phenomena and intellectual disciplines implicated in the laws of different jurisdictions (i.e. Germany, France, USA, and England and Wales), I experienced a sense of openness and a broadening in my scope of thinking and imagination. This was coupled with growing attention to detail, critical thinking, and ability to assess advantages and weaknesses of a given legal doctrine in one jurisdiction relative to another.
Unlike other universities, the intimacy of small classrooms at IE University allows students to develop strong professional and personal ties with their professors – in the long term. For instance, my passion and curiosity for the topic of universal jurisdiction did not go unnoticed, and in fact, was rewarded by my international criminal law professor through an impactful internship at a Spanish NGO. Such gestures left me with a gratifying feeling and taught me about the power of forging connections within the IE community. At the same time, the internship offered me at an early stage of my studies an opportunity to experiment and explore my interests in the legal field; to apply classroom knowledge within different contexts; to develop research skills; and to enhance legal writing.
What are your hobbies? Passions?
While cooking has now become the hobby of almost everyone in quarantine times, I have enjoyed cooking in my free time way before. I enjoy learning new recipes from different countries (my favorite being Indian food) and learning about new ingredients and flavors.
Theatre is also a long passion of mine. As a youngster, I participated in several theatrical plays as a lead performer, including ones featuring renowned literary authors such as Shakespeare and Gibran Khalil Gibran. The theatre was my avenue for embodying new and unknown personas, and it granted me the opportunity to act and think beyond the known and even accepted behavior, beliefs, and values. Although it was challenging at certain times, it was always fun and exciting to me.
What was your final project about?
My final project examines the impact of the inefficiencies of the U.S. stockholding system on shareholder voting, particularly for corporations listed on the New York Stock Exchange and registered under Delaware law. It then proposes the overhaul of extant stockholding and voting systems through the adoption of a private permissioned blockchain. To be sure, the aim of the paper is to investigate how the implementation of blockchain in the U.S. stockholding and voting systems may impact shareholder voting.
A brief historical review of the U.S. stockholding system reveals that the pre-existing direct holding system was displaced by an indirect holding system (“IHS”) due to proliferating costs/risks associated with the clearing and settlement of physical certificates in a time of soaring trade volumes (e.g. risk of losing certificates). Upon the introduction of the IHS in the 1970s, a central securities depository and clearing agency emerged, known as Depository and Trust Company (“DTC”). Its role comprises (i) serving as the record owner of these shares; (ii) holding physical possession of stock certificates in fungible bulk; and (ii) clearing and settling trades by transferring beneficial ownership of shares registered in book-entry form from sellers to buyers. However, this arrangement made it impossible to ascertain who owns any given share of stock because we no longer say that ‘investor A’ is the beneficial owner of stock certificate #123456789 instead she owns one share from a fungible bulk held by DTC. This lack of share ownership transparency coupled with the fact that beneficial owners no longer constituted record owners, meant that corporations lost communication with their owners.
Consequently, a new voting mechanism known as proxy voting emerged to accommodate indirect holding and rekindle communication between the corporation and its owners. Under proxy voting, voting rights are passed through long voting chains starting from DTC as the record owner, to brokers/banks and other types of intermediaries, all the way to ultimate beneficial owners. One can imagine how the complexity of this voting mechanism is rife with pathologies borne by beneficial owners – such as over-voting; manipulation of untraceable shares for personal profit (e.g. through hedging); and inability to exercise certain rights under corporate law due to impossibility of ascertaining how shares have been voted (e.g. appraisal claims).
A question begs itself here, has there been no attempt to improve the efficiency of shareholder voting, and thus, resolve voting pathologies? Well, the voting system is built around untraceable shares, as such, only incremental changes have been made till this day. Notwithstanding, the financial market has reached an interesting juncture at which blockchain could offer an avenue for a direct holding. DTC would no longer serve as the record owner nor hold shares in unidentifiable bulk – instead blockchain would record a clear chain of title for every unit of stock throughout the settlement cycle. That is, current and prior owners are identifiable to the corporation and other market players.
The traceability of share ownership under blockchain makes redundant the need for passing voting rights from the corporation to beneficial owners across a chain of intermediaries. Hence, direct voting by shareholders is enabled. The upshot is lower operational complexity yielding lower financial costs and errors borne by shareholders, as well as mitigated/eliminated voting pathologies. Nonetheless, one must be mindful that the blockchain proposal remains contingent on the resolution of technical design issues (e.g. resilience or security) and regulatory gaps (i.e. current U.S. Securities and Exchange Commission rules preclude any alternative share provenance system). These are critical considerations that proponents often seem to overlook.
Your investigative work has an innovative approach and is thorough, offering an insight to the future. What inspired you to investigate this topic?
Pursuing this research topic was an application of what I believe the study of law stands for, and which I had previously mentioned. As the topic combines complex legal considerations pertaining to securities regulation and corporate law infused with Fintech, I was excited to piece together these ideas as an endeavor to build a workable solution based on extant literature.
My appeal to the topic also comes from a place of not wanting to miss out on novel and relevant topics that are gaining the attention of not only the academic world but the market itself. Through this research paper, I endeavored to contribute to a now growing topic where there is great variation in the considerations offered by literature (in terms of extremity and outcomes). My goal was to exploit available variation in order to build a holistic and multi-angled view of how blockchain stockholding and voting might work and look like. As such, I proposed an infrastructure that goes beyond a basic framework, often offered by the literature, by making interconnections between blockchain’s technological features, clearing and settlement processes, and voting logistics all whilst making comparisons to the pre-1970s direct and IHS.
Finally, this research paper was a challenge and an opportunity to put to the test fundamental legal knowledge on U.S securities and corporate laws that I had acquired throughout my studies; and to expand basic know-how that I had personally developed on blockchain. This research was also an opportunity to test critical skills such as the ability to read and interpret U.S. case law and statutes/regulations, organizational skills to manage large volumes of information and documents, time-management, etc.
What were the challenges you encountered during the process of writing the final Project?
The biggest challenge was reaching a point of confidence in my understanding of the considerations underpinning blockchain. The more I read about blockchain as a pure recordkeeping mechanism, and in the context of stockholding and voting the more I was overwhelmed. I questioned my understanding at many points, but that proved to be highly beneficial because it ensured that each time I would have a better, enhanced understanding of the matter.
Of course, the process of drafting a research paper is stressful for any student but during my final university year, I had to personally juggle between mandatory subjects, extra elective subjects, being a class representative all whilst handling personal changes in my life. However, I do not regret nor look back at this journey in a negative light – rather I see it as professionally and personally rewarding. This experience (with all its lows and peaks) was impactful and truly put to the test my knowledge and skills.
Do you consider possible future research on the topic?
Surely, the topic remains infant and requires further research to identify other strengths/weaknesses in blockchain’s functionality as a stockholding and voting system; to propose different blockchain infrastructures with components yielding different outcomes/solutions; and to consolidate fundamentals relating to the topic. Without these developments, market players and regulators may be reluctant to adopt the technology given lack of experience therewith; risk of emergence of technical design issues that may endanger the overall health of the financial market; high startup costs upon adopting a novel technology; and resistance from incumbents who may be displaced by the technology.
One avenue for future research could be investigating the technical and legal impact of the Australian Securities Exchange’s (“ASX”) decision to replace its equity and settlement systems with blockchain by 2021. Perhaps even, a comparative law approach between U.S and Australian securities law could be useful. Notwithstanding, the general aim behind such research would be to appropriate and transform the experience of the ASX in terms of benefits, risks, and costs to a U.S use case.
“Plans like routes can change – either because one’s views change or because of unexpected circumstances. In any case, the way forward is not to resist change but rather to be agile and resilient enough to reach your final, desired destination.”
What are your plans after graduation? What areas of law are you interested in?
I am about to begin a two-year training program in order to sit for the Jordan BAR examination and qualify as a practicing lawyer. Once qualified in my home jurisdiction, I intend to become dual-qualified in England & Wales. I hope that would open avenues for practicing in major legal capitals and trade centers (e.g. London or Dubai). Of course, this may take a couple of years but my end game is building upon my education in comparative law; contributing to a growing supply of cross-border legal expertise; and fostering personal international experiences.
As for the areas of law that appeal to me, they are securities law and international arbitration. On one hand, practicing securities law would extend the business knowledge I acquired through my dual bachelors in Business Administration. It would also feed my flaring curiosity for the digitization of financial markets that had been sparked by my final project. On the other hand, arbitration would exploit my business knowledge but better match my international background. Arbitration may also be more challenging and exciting because it exposes lawyers to a greater variety in the areas of law, and requires mastery of persuasion.
On a final note, I am a firm believer that plans direct us to a desired state of being, a destination. But plans like routes can change – either because one’s views change or because of unexpected circumstances. In any case, the way forward is not to resist change but rather to be agile and resilient enough to reach your final, desired destination. Said differently, all roads lead to Rome.