Early last year, BlackRock launched Voting Choice to engage investors better in direct proxy voting. The world’s largest investment manager leveraged technology and innovation so that its clients can be more directly involved in the governance of companies they invest in.
Nearly a year on, BlackRock’s chairman and CEO Larry Fink is sharing the transformation this initiative has achieved among its clients. He is also encouraging other money managers to speed up and adopt access to direct proxy voting for their clients across the financial industry.
“One year after its launch, I am convinced that Voting Choice has the power to transform the relationship between asset owners and companies,” wrote Fink in a letter to clients and corporate CEOs. “And, if widely adopted, it can enhance corporate governance by injecting important new voices into shareholder democracy.”
The results have been encouraging. For now, only institutional clients have been able to participate in voting decisions. Over time, Fink hopes all clients – individual and institutional – will be able to access this Voting Choice.
As of September 30, 2022, $452 billion in client funds were exercising Voting Choice. Within the $452 billion of those participating, $157 billion were newly committed to the program. These numbers are part of the $1.8 trillion in index equity assets at BlackRock that are eligible for Voting Choice. Thus, the participation rate stood at 25% of eligible assets. Those assets include more than 650 global funds, as well as over 60 million people who participate in eligible pension plans.
BlackRock’s institutional clients have four options when participating in the voting initiative. The first option allows institutional clients that invest in certain pooled vehicles to exercise a high degree of control over decisions and voting.
This would be consistent across their overall portfolio allocation.
The second option is for clients that have separately managed accounts as opposed to pooled assets. They can take a hybrid approach to voting where they make voting decisions either on specific topics or on companies that matter most to them. The rest is left to the discretion of portfolio managers.
The third solution is to choose a third party that will vote according to clients’ views and preferences. This can be applied to separate or pooled assets of institutional clients.
The last solution is to have BlackRock make all voting decisions for them. It’s a deliberate decision by the client to let their money manager act as a fiduciary manager and look after their long-term financial interests.
Recent improvements to the Voting Choice initiative include the addition of seven Glass Lewis proxy voting policies. Investors already had the possibility to select one of seven BlackRock shareholder policies. With this expansion, they now have 14 policy choices.
The company also increases the type of investment strategies available to institutional investors. It added active equity strategies in addition to index-only ones.
“Unlike actively managed funds, which can and do sell the stock of a company they perceive as having poor corporate governance, index funds are the ultimate long-term investors,” said Fink in its letter. “Actively managed mutual funds across the industry in the U.S. typically hold a stock for just 18 months on average. By contrast, the average time a comparable index fund holds a stock is 20 years.”
Within the U.K. mutual fund market, investors will be able to exercise voting choices for select vehicles in the 2023 proxy voting season. BlackRock has partnered with Proxymity to provide the necessary technology.
“Until now, technological, operational, and regulatory hurdles have, for the most part, allowed us to offer voting choice only to certain institutional investors like pension plans, endowments, and insurance companies,” said Fink.
But over time, he expects this capability to expand to individual investors as well.
“As I’ve said before, my hope is that in the future, every investor – ultimately including individual investors – has access to voting choice, if they want it,” said Fink. “That’s why I’m so pleased that BlackRock today also announced 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. This is an industry first to translate individual investor views into voting instructions.”