Proxy Voting - A New Direction

Proxy Commentary

Proxy Voting - A New Direction

BlackRock’s giving index fund holders the ability to vote shares as they see fit is a massive change – for the better.
 
Larry Fink did not become the CEO of the world’s largest asset manager without exercising some intelligence. His recent move to allow holders of Index funds to votes shares represents a significant shift in the traditional way of conducting business, and one which was inevitable given the prevalence of indexation, and the high concentration within the index industry. Per the Wall Street Journal:
 
“BlackRock Gives Big Investors Ability to Vote on Shareholder Proposals Moves stand to transfer votes for as much as $1.5 trillion in index assets from BlackRock to investors such as pensions and endowments… In its client note Thursday, BlackRock said: “This initiative is consistent with wanting to offer clients choice across everything we do—the money we manage is not our own, it belongs to our clients.”
 
https://www.wsj.com/articles/blackrock-gives-big-investors-ability-to-vote-on-shareholder-proposals-11633617321?mod=searchresults_pos6&page=1
 
Our view is that the move counters one of the most significant criticisms of index funds to date, which is the concentration of voting power in the hands of a few individuals, regardless of their talent, sensitivities, and market insights. In fact, the industry should take an additional step to address lingering concerns and that is in the familiar area of conflicts in interest. It makes little sense for fiduciaries to rely on conflicted parties in providing services to their beneficiaries. However, that is exactly the current state. The dominant proxy advisory firms receive compensation from the very firms they are then reviewing for institutional investors. This is in short, an unmanageable conflict. How can a proxy advisory firm be compensated by a company for executive pay matters and then shortly thereafter make recommendations to shareholders on the same executive pay matters? It is little wonder that the ratio of executive pay to the average worker pay has risen to all-time highs. We believe it is only a matter of time before this sore on the markets is addressed. Hopefully, the actions of BlackRock will be a first step in cleaning up the markets.

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