BlackRock Provides Shareholder Democracy To Limited Investors!

BlackRock (BLK.N) is attempting to implement true shareholder democracy but only for a select few. On Thursday, the world’s largest fund manager announced that it will offer some of its most important clients more power over how the stocks backing their index-fund assets are voted at company meetings. Given Larry Fink’s strong stance on topics like climate change, giving up power may seem contradictory. Basically, it’s just a warm-up for something far bigger.

Over 1,000 BlackRock investors, who collectively own roughly $2 trillion in funds that track market indexes, will have a menu of options starting next year. One option is to vote for all firms themselves, which is technically possible but involves a lot of paperwork. Fink’s firm will now allow select clients to cherry-pick firms or projects, allowing them to weigh in on hot-button issues such as oil majors or executive pay. Many people will continue with the existing quo and let BlackRock make the final decision.

In a competitive market, giving customers more options, even if they don’t use them, is a selling point. Offering to give up some power could help you gain political clout. BlackRock’s assets under administration have increased by over 40% to $9 trillion in the last two years, attracting increased attention. Senator Elizabeth Warren, a Democrat from Massachusetts, has claimed that the company should be regulated as if it were too big to fail.

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In recent years, BlackRock has made a concerted effort to persuade companies to align with its values. In the year to July, it supported 35% of shareholder proposals, more than doubling the rate from the previous year. Many of them were concerned with environmental, social, and governance challenges. Fink’s firm, for example, supported a request that Wall Street firms disclose on their racial effect, which rival Vanguard objected to. Nonetheless, BlackRock wields significant power without putting its own money at risk. Fink’s new strategy goes some way toward addressing this.

BlackRock’s new voting menu is only available to large, advanced companies. More spectacular change will occur if Fink is able to provide the same level of service to investors in his $2.3 trillion in exchange-traded stock funds( ETF).This will necessitate yet another technological leap, but it is an important project. BlackRock and its peers have assisted in the conversion of millions of households into equity investors. The next step is to equip these individuals with the necessary tools to function as owners.

On October 7, BlackRock announced that it will allow some of its clients to vote directly for the roughly $2 trillion in equities that underlies its index-tracking funds. The policy change will initially apply to approximately 40% of the fund manager’s total equity-indexed products and will mostly be limited to big institutions.

Clients will have four categories to choose from:

  • They can vote for all industries themselves.
  • Or allow BlackRock to do so on their representative.
  • Choose to handover decisions to an investor proxy service, such as Institutional Shareholder Services.
  • And for some clients, directly vote through BlackRock’s infrastructure only for specific industries or propositions.

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