Global fund management king-pin, BlackRock, is pursuing plans to democratise corporate governance via a plan to open up proxy voting to individual investors.
In his annual letter to the heads of major listed companies last week, BlackRock chief, Larry Fink, says while expanding proxy voting rights to individual fund investors still faces “significant regulatory and logistical hurdles” such a move “could bring more democracy and more voices to capitalism”.
“Every investor deserves the right to be heard,” Fink says. “We will continue to pursue innovation and work with other market participants and regulators to help advance this vision toward reality.”
Traditionally, individual investors have little input into fund proxy voting decisions – especially for index-based strategies – that are either executed based on manager preferences, outsourced to specialist third-party advisers or ignored.
But BlackRock kicked off the proxy democracy movement this year, enabling institutional investors in global passive mandates and some US- and UK-domiciled pooled index funds to vote shares. The change will open up the proxy voting decision to about US$2 trillion of BlackRock passively managed assets – or 40 per cent of the total US$4.8 trillion of index money held by the firm on behalf of 60 million underlying individual investors.
“Much like asset allocation and portfolio construction, where some clients take an active role while others outsource these decisions to us, more of our clients are interested in having a say in how their index holdings are voted,” BlackRock says in a note. “We want to provide choice to these clients while continuing to support those who have selected BlackRock’s industry-leading investment stewardship team to vote on their behalf.”
As an aside, both the US and Australia have introduced new rules restraining the power of third-party proxy voting firms.
Fink says in the letter the manager is also launching a new think-tank, the ‘Center for Stakeholder Capitalism’, to explore some of the existential issues facing corporates, investors and wider societies.
“[The new organisation] will help us further explore the relationships between companies and their stakeholders and between stakeholder engagement and shareholder value,” he says.
In a wide-ranging CEO letter, Fink cites climate change, disruption of work practices and “new sources of capital” as some of the most important challenges to the current system.
‘Stakeholder capitalism’, he says, is not a “woke” political agenda but the best way to achieve long-term social and financial security.
“It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper,” Fink says in the letter. “This is the power of capitalism.”
After stellar growth in 2021, BlackRock assets under management tipped above US$10 trillion for the first time, equating to about 10 per cent of the total global fund market.