BlackRock has opened the proxy polling booth for individual investors in a small subset of UK managed funds as the investment giant pushes to “democratize [corporate] voting” across the globe.
In a letter to clients and CEOs, BlackRock chief, Larry Fink, says the new system extends the group’s Voting Choice program, previously available to asset owners in several jurisdictions, to individual investors in underlying funds.
“… we are working with a digital investor communications platform in the UK to enable investors in select mutual funds to exercise choice in how their portion of eligible shareholder votes are cast,” Fink says. “This is an industry first to translate individual investor views into voting instructions.”
However, the UK fund-voting privileges pioneered by BlackRock are likely more proof-of-concept than everyday reality with numerous hurdles ahead.
Fink says giving individual fund investors the right to vote on corporate issues (usually tabled at annual meetings) in all countries “will take the combined efforts of policymakers, regulators, fund boards, asset managers and other participants in the proxy voting system”.
“As we work to further democratize voting, we are eager to work with policymakers and regulators to explore what changes in law and regulations are required and examine how operational infrastructure may need to be adapted to support those changes,” he says.
But given the often low voter turn-outs even in high-stakes government elections, whether fund investors have the appetite to “wade through thousands of proxy questions every year” is moot.
And in practice the proposed BlackRock fund investor enfranchisement is a more pared-back version of corporate democracy for both cost and technological reasons.
“… the reality is that, until we have advances in technology, the costs of… [allowing investors to vote on every proxy issue] would be many multiples of the cost of the fund itself,” Fink says. “But we do believe, for example, that all investors should be able to pick from a range of voting policies to reflect their preferences and that it should be as easy to do so as it is to buy a mutual fund or ETF on your mobile phone today.”
The BlackRock direct-to-investor democratic dream might also reduce the sway of the increasingly powerful global proxy advisory services – including Institutional Shareholder Services and Glass Lewis – that have come under fire in recent times.
“While proxy advisors have a role to play in this process, overreliance on outsourcing to proxy advisors risks distorting the relationship between asset owners and the companies they invest in,” Fink says.
“… This revolution in shareholder democracy will take years to be fully realized, but it is one that, if executed correctly, can strengthen the very foundations of capitalism.”
Last week Vanguard, the second-largest fund manager in the world behind BlackRock, also announced plans to roll out a proxy-voting pilot for retail investors in several equity products.
“Our clients have diverse perspectives, and a growing number would like the option to weigh in on how their index funds vote on important proxy questions at the companies held in the funds,” Vanguard said in a statement.
Both BlackRock and Vanguard have accrued enormous proxy voting power via respective passive funds holdings.
Previously, the managers had entire discretion over how to vote shares held in their index funds.
BlackRock reported funds under management of just under US$8 trillion last month, well off the peak above US$10 trillion it hit at the end of 2021. Similarly, Vanguard saw assets under management fall to US$7.3 trillion at the end of August from a high above US$8 trillion clocked late in 2022.
While BlackRock is the largest fund manager in the world, Vanguard wins out as the biggest passive investment firm.