How a small group of BlackRock analysts speak for millions of investors

BlackRock votes on tens of thousands of proxy proposals per year. Responsibility lies with a team of around 70 people.

Millions of people are invested in the stock market through BlackRock’s index funds. As these passive investments grow in popularity, the company’s stakes in 13,000 companies around the world are also growing. The same goes for the influence of BlackRock’s investment management team.

The small group of analysts – BlackRock has about 18,400 employees in total – look after investors’ interests in the company’s $4.6 billion in passive funds. That means weighing in on issues as varied as executive compensation, climate change and access to abortion. CEOs compete for time on analysts’ calendars. They have the power to overthrow directors and disrupt corporate decision-making.

Last year, the team spoke to 2,300 companies through emails, phone calls and meetings and ultimately voted on 165,000 proposals at 17,000 shareholder meetings.

“It can feel like a lot of power at times,” said a former investment management team analyst.

The growing popularity of index funds has made their managers major shareholders in many public companies. This is especially true for BlackRock, the world’s largest investor with some $10 billion under management. The amount of equity the firm manages for passive investors has more than tripled over the past decade.

BlackRock’s growth and the way it has sought to exert its influence has upset corporate executives, especially those in the oil and gas industry. BlackRock’s stewardship team voted in favor of 47% of shareholder environmental and social proposals last year. His support helped an activist investor win seats on the board of oil giant Exxon Mobil.

“We have a new group of emperors, and they are the ones who vote for index fund stocks,” Charlie Munger, vice chairman of Berkshire Hathaway and business partner of Warren Buffett, said earlier this year.

A group of Republican senators introduced a bill last month calling for individual investors in passive funds to be given the ability to vote their shares, a move intended to limit the power of BlackRock and its ilk.

Vanguard and State Street, BlackRock’s two biggest rivals, also have small stewardship teams. Vanguard has approximately 60 stewardship analysts. State Street does not disclose the size of its executive team, but a 2020 Columbia Law Review article on corporate governance estimated its workforce at 12. The team has grown since then, a doorman said. -word of the company.

LILY BlackRock’s Larry Fink wants to save the world while making money

BlackRock chief executive Larry Fink said he wanted to get to a place where all individual investors could vote for their own shares. The company has given this option to institutional investors who control some $2.3 billion in assets. Investors representing about a quarter of this sum have accepted the company’s offer.

For now, the stewardship team is looking for those who can’t or aren’t willing to vote for their own shares.

It plays a particularly important role for index fund investors because they “don’t have the ability to sell stakes in companies that aren’t performing as expected,” BlackRock said in a February report on its priorities for the season. proxies 2022.

The investment management team is led by Sandy Boss, who spent two decades at McKinsey before joining BlackRock in April 2020.

Its analysts vary in tenure — their average tenure is 15 years — and some are fresh out of college, a BlackRock executive said. The team includes climatologists, engineers and corporate governance specialists. They speak a total of 20 languages ​​and work in 10 countries.

Each stewardship analyst is responsible for covering a specific industry. They dissect corporate proxy reports and third-party research, including ESG ratings from MSCI and corporate governance transparency scores from the nonprofit, nonpartisan Center for Political Accountability. Analysts also conduct their own research.

The team endorses research from Institutional Shareholder Services and Glass Lewis, but does not “blindly follow” voting recommendations from proxy advisory firms, BlackRock said in a recent report.

ISS helps the stewardship team filter out common and non-controversial proposals. All others are sent to the stewardship team for review. The team’s top priorities are board quality, strategy and financial resilience, executive compensation, climate and human resource issues.

Activist investors seeking to shake up a company’s board sometimes present the management team directly. In some cases, they present their director candidates to members of the stewardship team — in person or, since the start of the pandemic, virtually.

The team recently met with McDonald’s board candidates backed by Carl Icahn in his campaign to get the fast-food giant to change the way it treats pregnant sluts, according to a BlackRock executive. (Icahn nominees lost.)

The team’s busiest season is from mid-April to mid-June, when corporate America tends to hold their annual meetings. Prior to a meeting that involves contentious shareholder proposals, management analysts will present a recommendation to the team’s executive committee. The committee will sometimes consult with BlackRock’s active fund managers, who make their own voting decisions.

Voting decisions are made by the stewardship team alone; Fink and other BlackRock executives have no say. “They run the business, we run the vote,” Boss said in an interview.

That’s not to say Fink has no influence.

In late 2020, Fink convened a call with a few dozen members of the U.S. proxy voting team, according to people familiar with the matter. His message was clear: The team needed to do a better job of explaining its votes to company executives, the people said, especially around climate-related proposals.

Fink’s main concern was with public perception. He didn’t want Wall Street to think BlackRock had gone too far in pushing an environmental agenda, the people said.

The company’s stance on climate issues has angered executives and sidelined it from states that are home to fossil fuel companies.

Earlier this year, the West Virginia Treasury Investment Board stopped using a BlackRock fund after the fund manager urged companies to achieve net-zero emissions by 2050. And last June, the Texas has passed a bill requiring state entities to stop doing business with companies that boycott fossil fuels. -the fuel industry. Although BlackRock did not advocate for such a boycott, many saw it as a warning shot against the company and its peers, which manage billions of dollars for Texas retirees.

The BlackRock team has gone to great lengths in recent years to explain the reasoning behind high profile votes, such as in Exxon’s proxy fight. Index funds are required to report their votes annually to the Securities and Exchange Commission each August, and the team publishes quarterly reports on BlackRock’s website.

In a memo released earlier this year, the stewardship team said climate-related shareholder proposals had become more prescriptive and “intended for corporate micromanagement”.

The team said it is likely to support fewer climate proposals this year than last.

Write to Angel Au-Yeung at [email protected]

This article was published by Dow Jones Newswires, another service of the Dow Jones group

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