October 27, 2021

How BlackRock’s Client-Directed Voting Could Benefit Activists

A few short weeks ago, BlackRock announced a big change to how its institutional investor clients can vote. We’ve already written three follow-up blogs! We’ve covered:

What it could mean for companies

Why it may not be such a big deal

The impact on share lending

We’ll obviously be discussing this quite a bit in the months (and years?) to come. And now we can add a prediction from this Olshan memo – that institutional investors’ additional voting control could benefit activists. Here’s an excerpt:

We believe this could be a positive development for shareholder activists and potentially lead to a higher overall success rate in contested elections. In prior years, BlackRock has been particularly unsympathetic to activists in contested elections. According to Insightia, during the 2020/21 proxy season BlackRock supported at least one dissident nominee in only two of 14 election contests (including withdrawn and settled contests), or 14.3% of the time (down from 25% of the time in the 2019/20 season).

Allowing BlackRock’s institutional clients to depart from the firm’s historical tendency to vote in favor of management by giving these clients the ability to vote on their own could tilt voting results in favor of activists at shareholder meetings of companies where BlackRock is a significant shareholder. BlackRock also stated that it will explore extending these expanded voting choice capabilities to other clients in its ETF, index mutual funds and other products. This could give an even greater boost to the success rate of activists in election contests at companies where BlackRock is a shareholder.

Although the actual impact this initiative will have on voting results in contested elections is difficult to predict, it will likely influence strategic and capital deployment decisions both companies and activists will make when BlackRock is a shareholder. We envision companies and activists will widen their solicitation outreach to target not only the BlackRock Investment Stewardship team, but also individual institutional clients who could potentially take control of their proxy voting under the new voting framework. Proxy solicitation firms typically hired by both the company and activist in these campaigns will be tasked with ferreting out the identities of BlackRock clients as part of their solicitation efforts.

Liz Dunshee