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October 15, 2021
Liz blogged last
week about BlackRock’s decision to give certain institutional
investors the option to vote the shares they hold through BlackRock’s
index funds. She also addressed what
BlackRock’s decision might mean for public companies. This “Transactional
Delights” blog echoes
some of Liz’s thoughts, but also raises the possibility that this
change may not end up being that big of a deal. Here’s an excerpt:
So, what are some of the potential
outcomes of BlackRock allowing its clients invested in its
index funds a voting choice? My initial thought is that
the cost of proxy contests could go up if there are more
beneficial owners to solicit votes for because it might be
more difficult from a collective action standpoint to line
up all the votes you might need, whether its for a
dissident slate of nominees to the board (shareholder
activism), or ESG proposals regarding the company in
question. Two questions that come to my mind when thinking
about this are:
– A lot of the substance behind the ESG hype comes in the
form of ESG shareholder proposals and BlackRock has been
pretty bullish on embracing ESG principles, what does this
portend for the future with BlackRock giving up its voting
power?
– How soon after institutional will retail get this
ability?
Putting those questions slightly to the side, why might
this not be as big of a deal as I think it is? Well, I’m
not sure how you can entirely underplay 40% of $4.8
trillion, but, one practical point and a key question to
all of this is – do BlackRock’s institutional investors
actually want the vote? And furthermore, does retail (no
announcement made yet on this) want the vote?
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The blog says that the willingness of so many institutional investors
to rely on proxy advisors like ISS means that many aren’t likely to be
real keen on voting the shares held in BlackRock’s index funds. While
the blog doesn’t answer the question that it poses about whether
retail investors want the vote, the traditional
apathy of retail investors suggests that they probably aren’t all
that interested either. Of course, the blog also notes that given the
size of BlackRock’s holdings, the ability of its investors to vote
their shares will likely be an important strategic consideration in
many proxy contests..
My guess is that BlackRock probably has reached the same conclusion
about the interest of most of its index fund investors in pass-through
voting. But regardless of whether index fund investors actually vote
their shares, their ability to do so gives BlackRock something to
point to in response to growing concerns about just
how much of the world’s corporate equity it owns, and may be part
of its strategy to fend off regulatory
actions intended to address those concerns.
By the way, this CLS
blog points out some interesting fine print in BlackRock’s
announcement:
Did BlackRock bury the lede? Consider the following fine
print: “BlackRock will determine eligibility criteria
under this program based upon . . . financial
considerations, including the decision to lend
securities.” In an era of rock-bottom management fees,
lending shares to short sellers is an important source of
revenue for the fund industry. The message is clear: For
BlackRock, shareholder empowerment only goes so far. When
the price is right, BlackRock will trade away its clients’
votes for short sellers’ cash.
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Check out Liz’s recent
post on
our “Proxy Season Blog” for more on this aspect of BlackRock’s voting
policy change.
–
John Jenkins
Posted by
John Jenkins
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https://www.thecorporatecounsel.net/blog/2021/10/blackrocks-voting-change-not-such-a-big-deal.html
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