March 1, 2021

Institutional Investor Engagement: Public Engagement’s Impact

Each year, we blog about Larry Fink’s annual letter to CEOs. With BlackRock being among the largest shareholders for many companies, the letters are read with interest to help understand BlackRock’s key focus areas for the upcoming shareholder meeting season. A recent academic study examined whether “broad-based public engagement”, such as Larry Fink’s annual letter, is effective at influencing company behavior and it found that it is.

The study examined several questions, including among others, whether companies adjust disclosures following the release of Larry Fink’s annual letter and if so, whether BlackRock values the disclosures. For each of these questions, the researchers said yes, companies adjust their disclosures and BlackRock values them.

The researchers studied disclosures from 2016 – 2019 of 3,550 companies and observed a change in portfolio firms’ 8-K disclosures around the letter release date, suggesting that companies are responding to Fink’s call for more disclosure about topics of interest. Specifically, we find that portfolio firms’ disclosures during the post-letter period reflect an increase in language similar to that included in the letter, controlling for a variety of firm and disclosure characteristics. Moreover, our results indicate that the observed change in disclosure around the BlackRock letters is a response to BlackRock’s broad-based public engagement letters, rather than to a general demand for information from other important stakeholders (e.g., Vanguard and State Street) or to BlackRock’s private engagement.

Further, BlackRock appears to value these additional disclosures, as evidenced by less opposition to management recommendations in votes during subsequent annual shareholder meetings. This result extended to the subset of proposals related to environmental and social issues.

This Institutional Investor article discusses the research and in it the authors appear to advocate for investor public engagement. Hard to say whether we’ll see more of this from other investors but the authors say their research suggests public engagement is an effective way for investors to communicate broadly with portfolio companies beyond more costly individual interactions.

Welcome Back! Clayton Returns to Sullivan & Cromwell, Avakian to WilmerHale

In the time since former SEC Chair Jay Clayton departed the agency, some have wondered whether he would return to private practice.  Some may recall last summer when the DOJ issued an announcement that the President intended to nominate Jay to become the US Attorney for the SDNY – that nomination didn’t really go anywhere as he stayed at the SEC until the holiday season. A couple of weeks ago, Sullivan & Cromwell announced that Jay is returning to the firm’s New York office as Senior Policy Advisor and of counsel. The announcement also says that he’s been appointed as Lead Independent Director of Apollo Global Management.

Separately, last week WilmerHale announced that Stephanie Avakian, former Co-Director of the SEC’s Enforcement Division, is returning to the firm later in the year as Chair of its Securities and Financial Services Department and as a member of the firm’s Management Committee. Stephanie had been a partner at the firm prior to joining the SEC back in 2014.

January-February Issue of “The Corporate Executive”

The January-February issue of The Corporate Executive has been sent to the printer (try a no-risk trial). It’s also available now online to members of who subscribe to the electronic format – an option that many people are taking advantage of in the “remote work” environment.  The issue includes articles on:

– The Impact of COVID-19: Our Model CD&A Disclosure

– Recent Case Tests Attorney-Client Privilege for Law Firm Assisted Internal Assessments

– Deferred Compensation Plan Funded by a Rabbi Trust but Participants are Shut Out by Company and 409A

– Officer and Director Indemnification Provisions May Need Review

– Lynn Jokela