BlackRock clients are taking more control of the way their shares are voted on hot topics such as climate change and executive pay, as pressure mounts on the largest asset managers over their outsized power at US companies.
BlackRock said on Monday that the owners of more than $530bn invested in its index tracking funds are now instructing the firm how they want their voting power exercised. While some large clients have had this ability for years, the holders of $120bn more have signed up in the five months since BlackRock rolled out a new Voting Choice programme.
All US pension funds and most other institutional investors can now opt to have BlackRock vote for them, tell it to follow recommendations from a third-party proxy adviser or vote directly on shareholder proposals, director elections and takeovers.
BlackRock made the figures public ahead of a Senate hearing this week on the voting power of index tracking funds, which manage more than $11tn. BlackRock, State Street and Vanguard, the largest providers, are the biggest shareholders in most US companies.
Conservatives criticise the managers’ votes in favour of shareholder proposals on environmental, social and governance issues at company annual meetings. Some liberal scholars, meanwhile, argue that their cross-ownership of multiple companies is exacerbating oligopolistic tendencies within sectors.
Tuesday’s hearing is focused on Alaska senator Dan Sullivan’s bill that would bar index fund managers from voting on shareholder proposals and director elections unless they have specific approval from large institutional investors.
Republican co-sponsors of Sullivan’s bill said it would empower individual investors. But critics pointed out that US law vests the voting rights for retail mutual funds and exchange traded funds with fund boards, not investors.
Preventing large passive fund managers from voting would “disenfranchise index investors and disproportionately amplify the influence of other investors and advisers”, warned Ben Colton, State Street’s head of stewardship.
Activists, hedge funds and overseas investors, in particular, would gain power because they would not be affected by the requirements. Industry executives also noted that the big investment groups have a long record of voting with company managers most of the time, and investors who take direct control are more likely to do so when they want to change corporate policy.
BlackRock said half of the clients who are participating in its voting programme have opted to let BlackRock continue to vote their shares, 5 per cent are voting themselves and 45 per cent have asked for more information. The programme covers $2.3tn in index assets but retail funds are excluded because of the legal constraints.
“We see [this] as just a beginning. Our ambition is to make voting choice convenient and efficient for all investors,” said Salim Ramji, BlackRock’s global head of index investments.
At Vanguard, its internal stewardship team votes the shares held by passive index funds, while the external managers of its active funds vote those shares. “As we explore how to give investors more of a voice in proxy voting, we are listening to our clients and their preferences on the matter,” Vanguard said in a statement.
Large State Street clients who put their assets in separately managed accounts can already vote their own shares, and the firm is exploring ways to expand that to institutional investors who put money in pooled funds, Colton said.