The move stands to transfer votes from BlackRock to investors of up to $1.5 trillion in index assets such as pensions and endowments.
Starting in 2022, BlackRock says its big investors can vote for themselves on everything who sits on the board, from executive salaries to what companies should disclose on greenhouse gas emissions. This change allows those BlackRock customers to claim voting power on some of the $2 trillion in investments tied to the index-tracking assets BlackRock manages in institutional accounts. This is approximately 40% of the approximately $4.8 trillion of indexed equity managed by BlackRock.
“We believe that where possible, clients should have more choice in how they participate in voting for their index holdings,” BlackRock said in an announcement of the changes to the client note on Thursday.
BlackRock and other large asset managers have faced criticism for their huge voting power. The Securities and Exchange Commission last month proposed a rule that would require money managers to disclose more information about how they vote on behalf of their clients.
According to S&P Global Market Intelligence earlier this year, the $9.5 trillion firm became the top three shareholder of more than 80% of companies in the S&P 500 through its funds due to a one-year stock rally and indexing boom. Over the past year, the BlackRock Fund cast significant votes that helped rock Toshiba of the corporation
Board, and elect new board members at oil major Exxon Mobil Corporation
, out of thousands of votes cast by the BlackRock Fund.
BlackRock has stated that the voting monitoring team follows strict guidelines to maximize investor returns.
As part of the changes, BlackRock will let large investors pick and choose the proposals they want to vote on. An investor can decide to vote for just oil and gas companies or private prisons or gun manufacturers—or all companies. The investor can vote according to their own rules or values, or proxy advisory can vote with firms such as Institutional Shareholder Services.
It is the culmination of years of effort by BlackRock to build the technology infrastructure to proxy directly to customers, sync different parts of the shareholder voting ecosystem, and ensure that investors can deliver ballots on time.
In the past, some BlackRock clients have voted their own proxy for the $480 billion in indexed assets managed by the firm, but BlackRock did not have systems in place to accommodate more.
If organizations eligible for this option exercise their full voting power, this would result in the transfer of votes on approximately $1.5 trillion in assets from BlackRock’s hands to customers.
BlackRock said it is “committed to exploring all options to expand the proxy voting option to more investors.” This includes individual investors in exchange-traded funds and index mutual funds.
For years, academics and politicians have questioned whether BlackRock has too much influence through its votes.
In 2018, in response to the index fund boom, Harvard Law School professor John Coates warned that voting power would be controlled by a small group of people with “practical power over the majority of US public companies”.
BlackRock and other index giants have begun to use their votes more aggressively. Environmentalists and activists have often called on the biggest asset managers to do more to punish oil companies, while some investors worry about redundancies in their votes.
The world’s second-largest asset manager, Vanguard Group, delegated some of its voting power in 2019, so outside managers running the firm’s active stock funds vote separately from the funds they manage.
In its client note on Thursday, BlackRock said: “This initiative is in line with our desire to offer customers choice in everything we do – the money we manage is not our own, it belongs to our customers.” “
Dawn Lim [email protected]