BlackRock barges into corporate boardrooms

·4 min read

Investment giant BlackRock Inc. more than doubled its support for shareholder proposals this year, throwing its weight behind more than a third of efforts to oust directors, report greenhouse gas emissions and disclose lobbying expenditures.

At companies across the globe, BlackRock supported 64 percent of environmental proposals and about a third of social and governance resolutions put forth by shareholders in a year when workforce diversity and climate risk rose to the top of investor concerns.

With $9 trillion in assets under management and ownership of more than 7 percent of shares on the S&P 500, BlackRock voted against corporate management at 42 percent of shareholder meetings this year, up from 39 percent in 2020.

The data, released Tuesday in a report on the company’s activity through June 30, could signal a powerful shift in the way Wall Street views corporate risk.

Public pension funds and activist investors have long pressured companies to pay heed to climate change, ethnic and gender diversity, and other emerging challenges. This year, at several high-profile votes, the largest asset managers — stewards of the average American’s 401(k) and mutual funds — have brought their significant power to the table, too, with sometimes dramatic results.

At least 34 resolutions won majority votes, up from 21 last year, an unprecedented number, according to data provider Proxy Preview. Those shareholder wins could not have occurred without support from big mutual funds like BlackRock.

“We’ve been engaging companies for a number of years,” Michelle Edkins, BlackRock's managing director for investment stewardship, said in an interview. “Where we expect better progress to have been made and a shareholder proposal addressed that issue, we were more inclined to support it.”

Size matters: BlackRock, Vanguard Group Inc. and State Street Global Advisors Inc. are the biggest managers of retirement and investment funds in the U.S. Combined, they hold nearly 20.2 percent of shares in the S&P 500, according to S&P Global Market Intelligence.

While BlackRock allows its active fund managers discretion in how they vote their shares, those funds represent a small portion of the asset manager’s overall assets. Ninety percent of the company’s equity assets are indexed.

BlackRock CEO Larry Fink in 2018 famously put executives on notice that the fund manager would scrutinize how companies manage environmental and social risk and urged them to think for the long term.

State Street, with $3 trillion under management, and Vanguard, at $7 trillion, haven’t released their tallies for this proxy season, which wraps up in August. Like BlackRock, they’ve said that ESG issues will play a role in how they vote their shares.

Winning and losing votes: The most dramatic vote this year came in May, when all three investor groups cast ballots in varying degrees against Exxon Mobil Corp.’s slate of directors.

At Union Pacific Corp., BlackRock tipped the scales in favor of a shareholder proposal that the company disclose its consolidated EEO-1 report, a federally mandated form that provides a demographic breakdown of the employer's workforce by race and gender.

It supported a similar winning proposal at DuPont de Nemours Inc. In addition, it backed a request that the chemical company issue an annual report on plastic pollution, which also passed.

BlackRock’s vote wasn’t enough for a majority to require Union Pacific to report on its greenhouse gas emissions, however. And at Charter Communications, a shareholder request for more disclosure on political spending and diversity also failed, despite BlackRock’s support.

Executive pay: At General Electric Co., BlackRock opposed CEO Larry Culp’s pay package, which was revised when the company’s stock hit a 20-year low in the middle of the coronavirus pandemic last year. BlackRock cited a lack of transparency in the company’s decision-making, but shareholders ultimately approved the pay package.

Edkins complained about “in-flight” adjustments to executive pay made during the pandemic.

“It seems like a peculiar priority when there are a lot of very critical decisions to be taken,” she said. “Where there’s a misalignment between a company’s performance and a company’s pay, that’s when we would have voted against say-on-pay and against members on the compensation committee.”

Shareholder groups react: Big asset managers vote too frequently with corporate management, critics say, and a lack of transparency can make it difficult to determine exactly who voted how. But those same critics are encouraged by this year’s votes.

“This is a positive trend,” said Andrew Behar, CEO of shareholder advocacy group As You Sow. “This year was probably the most extraordinary in terms of shareholder empowerment and shareholders actually showing up and using the power of their vote to express discontent with companies.“

Still, some funds sold as investments that minimize environmental, social and governance risk continue to vote against their own stated values, according to Gita Rao of the MIT Sloan School of Management. Such activity has drawn scrutiny from the SEC.

“This is movement, but we’ve got to look under the hood“ at particular funds, Rao said in an interview.

“If BlackRock, State Street and Vanguard decided today that they would start voting yes on environmental and social proposals,” she said, “the entire landscape would change.”

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