BlackRock told big customers such as pension funds that they will have the choice to cast their own proxy votes starting next year, the first in a series of steps the asset management giant is taking to expand shareholder participation in the proxy voting process.
BlackRock (ticker: BLK), like other asset managers, has long cast proxy votes on behalf of its customers. At BlackRock, the job is done by a “stewardship” team. Shareholder proposals often cover a variety of routine issues, including executive pay and board nominations, but can also raise contentious issues such as product safety and carbon emissions.
As more investors desire to make their own voices heard on corporate governance matters––especially those regarding social and environmental issues––money managers are feeling increased pressure to put the choice back in the hands of shareholders themselves.
Starting next year, institutional investors in some of BlackRock’s index strategies will be able to cast proxy votes in line with their own values and goals. Approximately 40% of BlackRock’s $4.8 trillion index-tracking equity assets will be eligible, according to the company, including funds in millions of retirement accounts. BlackRock’s stewardship team will continue to vote proxies on behalf of clients that choose to delegate to them.
Academics and politicians have questioned whether money management firms wield too much power over public companies through their vast ownership and proxy voting rights.
A 2019 study found that the three index-fund giants––Vanguard, BlackRock, and State Street (STT)––collectively cast an average of about 25% of the votes at S&P 500 companies. One large asset manager could sometimes tip the outcome on a shareholder vote.
Last month, the Securities and Exchange Commission proposed a rule that would require money managers to disclose more information on how they vote on behalf of their clients.
“Core to this is the fact that the money we manage is not our own; it belongs to our clients,” BlackRock said in a statement, “Much like asset allocation and portfolio construction, where some clients take an active role while others outsource these decisions to us, more of our clients are interested in having a say in how their index holdings are voted.”
The choice eventually might extend to investors in BlackRock’s ETFs, index mutual funds and other products.
“We have long been calling for asset owners to be able to have a say in the voting of their shares, so today’s announcement from BlackRock signals a welcome step change for the industry,” says Maria Nazarova-Doyle, head of pension investments and responsible Investing at Scottish Widows, in a statement.
BlackRock is not the only company trying to make shareholder engagement more accessible to investors.
Stock trading app Robinhood (HOOD), for example, said in August that it will acquire Say Technologies, a communication platform that aims to help shareholders take part in proxy voting and engage with management teams. Robinhood said Say’s technology would make it easier for retail investors on its platform to exercise their ownership rights.
Proxy voting is also becoming an increasingly heated battleground for shareholders to push for environmental, social, and corporate governance, or ESG, initiatives.
Hedge-fund shop Engine No. 1 took everyone by surprise earlier this year when it won three board seats at Exxon Mobil (XOM) after a six-month proxy fight. Despite its small size and short history, the company successfully got many large investors on board with its proposal to push the oil giant toward cleaner energy and carbon emissions reduction.
Engine No. 1 later launched an ETF with an explicit mandate to use the shares it owns to propose, advocate, and vote for ESG changes.
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