The 2023 Proxy Season Suggests the World’s Largest Asset Manager is Pivoting to Pragmatism
9/14/23 – – Each year by the end of August, mutual funds and registered management investment companies are required to file Form N-PX with the U.S. Securities and Exchange Commission, disclosing how they voted on shareholder and management proposals during the trailing proxy season.
Typically not a headline-worthy event, the filings this year made news.
BlackRock — which oversees a $9.4 trillion investment portfolio — voted against 91% of all shareholder proposals and 93% of proposals focused on environmental and social issues during the 2023 proxy year.
Why is this news?
Headed by its very outspoken, politically active founder/CEO Larry Fink, BlackRock has pushed managements to adopt progressive ESG (Environmental, Social, Governance) agendas. Just two years ago, BlackRock supported 43% of ESG-related shareholder proposals.
So why the dramatic change of heart?
While BlackRock insists the change in its voting pattern reflects the poor quality of shareholder proposals (“too prescriptive,” “lacking economic merit,” “redundant”), another factor is at play. An August 31 article in Pension & Investments explained: “The latest voting report comes a month after BlackRock said it would be expanding its voting choice program, which currently allows some institutional investors to vote their own shares, to holders of its largest ETF, including retail customers.”
In other words, given the chance to voice their own voting preferences, BlackRock’s clients are saying “not so much” to ESG. Recognizing this backlash, Larry Fink has said he will no longer be using the label “ESG,” which he says has been “weaponized” by right-wing politicians. States under Republican control, responding to what they see as fiduciary responsibility taking a back seat to political/social activism, have been withdrawing their public pension fund dollars from BlackRock.
Credit BlackRock for listening. But its apparent retreat from ESG has not gone unnoticed by environmental activists, who according to Pensions & Investments have, “lambasted Mr. Fink and his company for not doing enough to stop climate change, protesting in front of BlackRock’s headquarters and heckling senior executives at public speaking engagements.”
BlackRock is experiencing what I have pointed out in this blog many times before: Politics is the third rail of social and corporate interaction. It’s one of the primary sources of crises we discuss in Chapter 3 of The Crisis Preparedness Quotient (“Where Crises Come From”). Consumers and investors do appreciate and support social activism when it aligns with their beliefs and political views. But here’s the kicker: They highly resent it when it doesn’t.
The proxy voting trends we’re seeing bring to mind the landmark article in the September 13, 1970, edition of The New York Times Magazine by free-market economist Milton Friedman titled, “The Social Responsibility of Business Is To Increase Its Profits.” Friedman, who was awarded the Nobel Prize for Economics in 1976, presented this unambiguous thesis:
In a free society there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.
Despite Professor Friedman’s critics, his 53-year-old observation may still have legs.
Sustainability, treating all people fairly and practicing good governance are hallmarks of well managed companies. But it looks like BlackRock’s clients — like the consumers of Bud Light, visitors to Disney World, purchasers of MyPillow products, and sports fans — are expressing their exasperation over so many parts of their lives being politicized. “Stay in your lane” and “stick to business” are phrases being heard more and more by manufacturers, marketers, educators, professional sports leagues . . . and investment companies.
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