With more than $6 trillion in assets under management, BlackRock has one of the loudest voices on Wall Street. And lately, the heavyweight investment manager has been using it. Earlier this year, founder Laurence Fink sent CEOs a pointed message that they need to contribute positively to society or risk losing BlackRock’s investment dollars. Now, BlackRock has updated its influential proxy voting guidelines for U.S. securities.
Consistent with its recent messaging, the proxy voting guide calls for action from public companies on a number of “ESG” (environmental, social, and corporate governance) issues, as well as board membership. It also includes notable comment on executive compensation, which is likely to become a topic of conversation with implementation of the pay ratio rule this year. BlackRock’s positions, which will dictate huge numbers of proxy votes, include the following:
On Boards and Directors
- Overboarding: This is an issue BlackRock takes seriously. It was the top reason BlackRock voted against Russell 3000 company directors in 2016, according to Proxy Insight numbers. It’s also an issue on which BlackRock takes a relatively strict position. While State Street, for instance, advises that CEOs should not sit on more than three public boards, BlackRock wants CEOs sitting on no more than one additional board. BlackRock also says that non-CEOs should not sit on more than four boards total.
- Board Diversity: BlackRock “expects boards to be comprised of a diverse selection of individuals.” The guidelines speak most directly to gender diversity, stating that “we would expect to see at least two women directors on every board.”
On Environmental & Social Issues
- Climate Change: In March 2017, BlackRock issued a report on how it engages with companies on climate risk. It stays the course in its proxy guidelines, affirming that “we believe that climate presents significant investment risks and opportunities to many companies.” For BlackRock, disclosure goes a long way when it comes to climate-related issues. It notes that in assessing shareholder proposals on climate risk, it will be particularly attuned to “the robustness of the company’s existing disclosures.”
- Political Activities: While BlackRock notes that political activities can create risk for companies that engage in them, it also notes that political action can “serve shareholders’ best long-term economic interests.” BlackRock is also clear that it doesn’t believe shareholders should dictate corporate political activity, and thus generally does not support shareholder proposals calling for it.
On Executive Compensation
- Claw backs: BlackRock comes out in favor of “recoupment” from senior executives in a number of situations – specifically, when the executive’s compensation was “based on faulty financial reporting or deceptive trade practices,” or when the executive’s behavior “caused direct financial harm to shareholders, reputational risk to the company or resulted in a criminal investigation . . . .” Further, BlackRock says that it generally supports shareholder proposals on this issue unless the company in question has a “robust” claw back policy already in place.