June 14, 2022

“Pass-Through” Voting: BlackRock Has Big Ambitions

Last fall, BlackRock unveiled a new “Voting Choice” program to give certain institutional investors the option to vote the shares that they hold through BlackRock index funds. We blogged about the ins & outs – and the potential impact on portfolio companies. Yesterday, the world’s largest asset manager announced that 25% of eligible assets are now participating – which works out to investors holding $530 billion of assets out of $2.3 trillion eligible. Now, BlackRock is expanding the program to cover clients representing 47% of its index equity assets – including public & private pension plans serving more than 60 million people, insurance companies, endowments, foundations and sovereign wealth funds.

This is a notable uptake & expansion for a new program that’s still in its first year of existence. And BlackRock isn’t stopping with institutions. In this new 21-page whitepaper, BlackRock outlines its ambition to expand Voting Choice to all investors – including individual investors in funds. Whether this would extend to individuals was one of the big question marks at the time of BlackRock’s original announcement – but apparently it is already rolling out pilots in the UK and with a small subset of US individuals, and working with policymakers on legal, regulatory & infrastructure changes that would allow more pass-through voting in the US. BlackRock acknowledges that Voting Choice would look different for retail funds than it does for currently eligible institutional investors.

Currently, BlackRock Voting Choice offers 4 options, which the asset manager explains as:

1. Clients exercise control over their voting – Some of our largest institutional clients have the resources and the expertise to create their own voting policies, as well as the infrastructure needed to conduct the voting. This option gives clients in our pooled vehicles the ability to apply their stewardship preferences in a consistent way across a broader share of their overall portfolio allocation and to exercise a high degree of control over the decision-making process and the voting implementation. We stress, however, that BlackRock Voting Choice is available to institutional clients of all sizes and resourcing levels.

2. Clients take a hybrid approach to voting – This option gives institutional clients in separately managed accounts (but not pooled vehicles) the ability to exercise their voting decisions on the topics or at the companies that matter most to them. Clients can choose to vote their own preferences on some categories of votes, rather than all; these may be specific proposals (for example on governance), specific sectors (such as energy or finance), or specific markets (often the client’s home market). The client can choose to leave all other voting decisions to the manager’s discretion.

3. Clients choose from a slate of third-party policies – Under this option, institutional clients in both separately managed accounts and certain pooled vehicles can choose to follow an off-the-shelf voting policy from third-party proxyadvisers, choosing the policy that best aligns with their views and preferences. Institutional Shareholder Services (ISS), Glass Lewis, and others already offer ready-made policies. Our clients can currently choose from at least seven different third-party policies, and we expect and hope that the range of choices will expand over time in line with growing investor demand for a diversity of choices.

4. Clients rely on BlackRock’s informed judgment for all voting decisions – In this option, clients may choose to rely on BlackRock for all of their voting decisions. Continuing to rely on us to exercise voting authority is itself a choice and a deliberate decision to trust BlackRock as a fiduciary to look after our clients’ long-term economic interests.

For companies, more dispersed voting could amplify the workload for engagements & solicitations – but could also lessen the impact of any one holder. BlackRock will still be important. The whitepaper emphasizes that it will continue to engage with portfolio companies throughout the year on issues that it believes are material to a company’s ability to create long-term economic value for shareholders, including governance and long-term strategic planning. It says that these engagements inform BlackRock’s own voting decisions, and they see it as a fundamental part of their approach to investment stewardship. BlackRock Investment Stewardship remains core to the asset manager’s fiduciary responsibility to its clients.

Don’t miss hearing important updates from Michelle Edkins, the Global Head of BlackRock’s Investment Stewardship team, at our “Proxy Disclosure Conference” and our “1st Annual Practical ESG Conference.” These events are being held virtually the week of October 11th. Our “Early Bird” rate ends this Friday, so sign up now to get the best price. You can sign up online, email, or call 1-800-737-1271.

Liz Dunshee