In December, Microsoft shareholders will vote on a proposal that asks the company’s board to assess whether the tech giant should invest in Bitcoin. Holding cryptocurrency on a publicly traded company’s balance sheet is not yet common, and many consider it a practice that holds more risk than reward. However, companies such as Tesla, MicroStrategy and institutional shareholder BlackRock that have gambled on the volatile asset class have reaped significant gains as Bitcoin has soared to valuations above $73,000 per coin recently. So, what should a company board do if presented with a shareholder proposal asking it to approve investing company funds into Bitcoin?
Microsoft’s board has formally recommended its shareholders vote against the proposal. According to several news reports, Microsoft has stated: “This proposal requests that the Board conduct an assessment that is unnecessary because Microsoft’s management already carefully considers this topic. Microsoft’s Global Treasury and Investment Services team evaluates a wide range of investable assets to fund Microsoft’s ongoing operations, including assets expected to provide diversification and inflation protection.”
The proposal was submitted by The National Center for Public Policy Research (NCPPR), a conservative think tank. According to news reports, the NCPPR pushed for the proposal because it sees Bitcoin as an “excellent, if not the best, hedge against inflation,” and argues that “in inflationary times like these, corporations should—and perhaps have a fiduciary duty to—to diversify their balance sheets with assets that appreciate more than bonds, even if those assets are more volatile in the short-term.”
The vote on this proposal may ultimately affect all corporate boards, so directors should monitor the outcome to determine what the potential impacts might be if shareholders approve it. If Microsoft shareholders vote in favor of Bitcoin investing, how many other companies will follow? As the valuation of Bitcoin continues to rise, all boards may need to prepare to answer some or all the following questions:
- Is Bitcoin an appropriate asset to hold on a company balance sheet, or is the volatility risk too high? How should the company decide what would be the “right” level of investment in the volatile asset? And what would be the best way to manage an investment in Bitcoin that is in the best interest of shareholders, and also aligns with the overall business strategy of the company?
- What are the potential consequences for the company if investing in Bitcoin backfires, and the company loses significant investment capital? Will the board and management be asked to resign even if a shareholder proposal compelled the board to invest in Bitcoin? Will there be lawsuits because of failed investments in Bitcoin? How can the board protect itself and the company from these risks?
- What can boards do to deal with the possibility that more shareholders may attempt to file proposals that dictate decisions that many believe should only be made by the board and management?