BlackRock (BLK.N) is experimenting with real shareholder democracy – initially just for the lucky few. The world’s biggest fund manager said on Thursday that it will give some of its biggest clients more say on how the shares underlying their index-fund investments are voted at company meetings. Giving up power might seem counterintuitive given boss Larry Fink’s outspoken position on issues like climate change. Actually, it’s a warm-up for a much bigger devolution.
From next year, over 1,000 of BlackRock’s clients, who together hold roughly $2 trillion of funds that track equity indexes, will get a menu of options. One is to cast their own votes for all companies, something that’s technically possible already but brings masses of paperwork.
Fink’s company will also now give some clients the option to cherry-pick companies or proposals, weighing indirectly on hot-button topics like oil majors, say, or executive pay. Many will stick with the status quo and let BlackRock decide.
Giving clients more choice, even if they don’t use it, is a selling point in a competitive market. And offering to cede some influence may score political points. BlackRock’s assets under management have grown nearly 40% over the past two years, to $9 trillion, inviting greater scrutiny. Democratic Senator Elizabeth Warren has argued that the firm should be regulated as if it were too big to fail.
BlackRock has more actively tried to get companies to align with its values in recent years. In the 12 months to July, it backed 35% of shareholder proposals, twice the rate from a year earlier. Many were related to environmental, social, and governance issues. For example, Fink’s firm backed a request that Wall Street firms report on their racial impact, which rival Vanguard opposed. Even so, BlackRock wields significant influence without putting its own capital at risk. Fink’s new plan goes some way to addressing that.
Only big, sophisticated firms can try out BlackRock’s new voting menu. More dramatic change will come if Fink can offer the same to investors in its $2.3 trillion of exchange-traded equity funds. That will take another technological leap, but is a worthwhile project. BlackRock and its peers have helped turn millions of households into equity investors. The next step is to give these people the tools to act like owners.
- BlackRock said on Oct. 7 that it will let some of its clients cast shareholder votes directly for around $2 trillion of equities that underpin its index-tracking funds. The new policy applies to around 40% of the fund manager’s total equity-indexed products, and will initially be mostly limited to large institutions.
- Clients will be able to choose from four options. They can cast votes themselves for all companies; let BlackRock do so on their behalf; choose to delegate decisions to a shareholder proxy service, like Institutional Shareholder Services; or, for some clients, vote directly using BlackRock’s infrastructure only for certain companies or proposals.