The world’s largest asset manager [BlackRock] is set to allow big pension funds and other sophisticated institutional clients to directly vote on issues from executive pay to climate change at annual meetings in a move BlackRock says will apply to nearly half of the $4.8tn of index equity assets it currently manages.
BlackRock’s idea to give institutional clients more control over how shares of stock are voted could be a good step. Some, such as Alex Pollock, say that it is still a ladder with the first rung above the head of most investors.
The fundamental idea of owning stock in a corporation is that shareholders acquire, along with their investment, ownership rights in the company, including the right to vote on company questions commensurate with their investment. These questions can include composition of the board of directors, compensation for company executives, company auditors, and company investment and disclosure policies, among others.
As Alex Pollock notes in an October 13 letter to the editor of the Financial Times, BlackRock acknowledges, “The money we manage is not our own, it belongs to our clients.” Hence, BlackRock’s new policy idea.
What is that to you? About half of all adults hold stocks. If you directly hold shares of a particular company, you have likely been regularly receiving—via your broker-dealer—notices from your company about questions up for a vote, such as in the annual shareholders meeting. With that notice comes the option for you to choose how to have your shares voted, or you can attend the meeting and vote directly.
Most shareholders, however, hold their stocks via mutual funds, exchange traded funds, pension funds, and other forms of group investments. You never receive notices about how you want the shares managed by those funds in the companies you own to be voted. They may never be voted. When they are, you are not asked how you want them voted.
BlackRock, as the world’s largest investment manager, has been under relentless pressure from groups—which have little or no financial interest in these funds—to vote those shares in specified ways. These groups have their own agendas, which may or may not coincide with shareholders’ desires and interests—financial, political, or otherwise.
BlackRock hopes to relieve some of that pressure by passing it on to investment funds that place their clients’ money with BlackRock. As Alex Pollock explains in his Financial Times letter, however, “BlackRock is handing zero voting power to the real owners of the shares which it manages as agent.” It is making it easier for others—the fund managers of your investments—to vote your shares, but they do not own your shares. You do, and the BlackRock proposal does not reach to you to learn what you think.
Your broker-dealer cannot vote your shares. In many cases, though, the managers of funds through which you own stock can. They can use your investments to vote as if they were their investments. That can give them a lot of financial and, increasingly, political clout. With your money, they can pursue their agenda, not yours.
Alex Pollock recommends in his letter that “All investment agents, both broker-dealers and asset managers alike, should have the same requirements: no voting of shares by the agents without instructions from the principals.” “From the principals” means from you, the shareholder. That is the requirement for broker-dealers. Why should it not apply to the fund managers who, without your money, would have nothing but their own?
Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at email@example.com.