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 sales@ccrcorp.com, or call 1-800-737-1271.
Last week, a shareholder proposal requesting an annual report on climate passed with 96% approval at Caterpillar (hat tip to Maynard’s Bob Dow for alerting us). Management recommended in favor of the proposal (see page 52 of the company’s proxy statement). Specifically, the proposal called for:
Shareholders request that Caterpillar issue a report within a year, and annually thereafter, at reasonable expense and excluding confidential information, disclosing interim and long term greenhouse gas targets aligned with the Paris Agreement’s goal of maintaining global temperature rise at 1.5 degrees Celsius, and progress made in achieving them. This reporting should cover the Company’s full scope of operational and product related emissions.
It’s becoming more common for the board to support shareholder proposals or choose to not make a recommendation, according to a recent report from Georgeson that I blogged about last week on our Proxy Season Blog. It’s unclear what the long-term consequences of that approach will be for companies – goodwill amongst shareholders? More proposals? Additional disclosure & scrutiny? For now, the most immediate result is that some shareholder proposals are achieving a very high level of support.
Some are viewing this result as favorable for “say on climate.” But this type of proposal is slightly different than “say-on-climate” – so the voting results don’t tell the whole story for that angle. As the say-on-climate proposals were emerging in fall of 2020 and during the 2021 proxy season, I blogged about early misgivings among investors. Just in the past few weeks, Vanguard updated its “Perspective on Say-on-Climate Proposals” to say:
– At this time, Vanguard does not proactively encourage companies to hold a “Say on Climate” vote given the lack of established standards or widely accepted market norms that govern these votes.
– When a company chooses to hold a “Say on Climate” vote, Vanguard expects the board to provide clear disclosure of the rationale for the vote, to articulate the oversight mechanisms and implications of the vote, and to produce robust reporting in line with the Task Force on Climate-related Financial Disclosures (TCFD) framework.
– Vanguard does not seek to direct company strategy. We view “Say on Climate” votes as a signal on the coherence and comprehensiveness of the reporting and disclosures a company provides to explain its climate plan to the market, rather than an endorsement of, or an expression of lack of confidence in, the plan itself.
This Insightia blog notes that investors, asset managers and proxy advisors continue to worry that plans are just another path to greenwashing – winning high support even though they aren’t clearly aligned with Paris Agreement goals. Here are a couple of nuggets:
– Proxy adviser Glass Lewis shared with Insightia Monthly in March that its fears about the campaign have been “fully realized”, with some “objectively bad climate plans winning upwards of 90%+ support.”
– ShareAction’s claims that climate transition plans from Barclays and Standard Chartered were insufficient, on the grounds that they featured loopholes to ensure continued fossil fuel financing, fell largely on deaf ears. Both U.K. banks’ climate plans won upwards of 80% support at their 2022 annual meetings.
For now, the investors that are actually casting the votes seem enamored with the ability to have a “say” – and some companies seem happy to provide it. But with say-on-climate resolutions calling for annual reporting, more transparency is on the way. That means it probably won’t take long for these plans – and anyone involved with establishing & executing them – to draw more scrutiny. Not to mention, companies that set goals may find themselves with greater disclosure obligations (and liability risks) under the SEC’s proposed climate disclosure rules.
Emily blogged yesterday that proposals to eliminate dual-class structures are receiving record support this proxy season. A new $1 trillion coalition of investors – including the CII, New York City Comptroller, and several state retirement funds – is committing to stopping unrestrained dual-class structures as companies go public. Here’s an excerpt from the announcement:
The group, which is expected to grow over time to include additional asset owners and potentially asset managers, will dialogue with key market participants and policymakers, emphasising the importance of the proportionate shareholder voice to effective stewardship and long-term sustainable company performance – and ultimately preventing the further enabling of dual-class share structures, without strict mandatory time-based sunset clauses, in jurisdictions like the US and UK.
In the first phase of the initiative, ICEV will undertake a campaign with pre-IPO companies and their advisers, as well as policymakers, commentators and index providers in priority jurisdictions. This will take place through engagements with both private and public market participants as well as in policy forums.
The announcement includes a reminder that CII has drafted legislation that would require national stock exchanges to bar listings of new dual-class companies unless they have seven-year sunset provisions, or if each class, voting separately, approves the unequal structure within seven years of the IPO.
These Conferences are in a league of their own in terms of the expert lineup and the focus on practical guidance. With a record number of shareholder proposals this year, universal proxy coming into effect, a deluge of SEC rulemaking, and unprecedented scrutiny of corporate disclosures & actions, attending is the best thing you can do to arm yourself for the 2023 proxy season.
ESG is at the forefront of board agendas, regulatory agendas, enforcement agendas, and shareholder agendas. Yet, it’s very difficult to get useful information about what real-world steps to take to make progress, to measure results, and to validate the data needed to support disclosures. Join our lineup of experienced practitioners virtually on October 11th for candid, practical guidance – in these sessions:
– ESG Hot Topics: Forewarned is Forearmed
– Carbon Accounting Risks: Offsets, Disclosures & More
– ESG Litigation & Investigations: Are You at Risk?
– ESG’s Employment Law Landmines & How to Avoid Them
– DEI Trends in the Midst of Rapid Change
– Your ESG Team: Candid Board & Staffing Considerations
Question: Would the staff of the Division of Corporation Finance or the Division of Trading and Markets consider a future or forward contract that permits cash or physical settlement to be “intended to be physically settled” and therefore excluded from the definitions of “swap” and “security-based swap” if, at the time the parties enter into the contract, the underlying securities cannot be legally transferred, or the transfer of the underlying securities is restricted by contract?
Answer: No. In Release 33-9338, the Commission stated that the analysis as to whether sales of securities for deferred shipment or delivery are intended to be physically settled is a facts and circumstances determination. However, the Commission also stated in Release 33-9338 that the purchase and sale of the underlying securities occurs at the time when the parties enter into the contract, and that the determination of whether an instrument is a swap or security-based swap should be made prior to execution, but no later than when the parties offer to enter into the instrument. To the extent that at the time of sale the securities underlying a future or forward contract could not be legally transferred, or the transfer of the underlying securities would be restricted by contract, the staff of the Division of Corporation Finance and the Division of Trading and Markets would not consider the contract to be “intended to be physically settled” for purposes of the definitions of “swap” and “security-based swap.”
Accordingly, for the staff to conclude that a sale of securities for deferred shipment or delivery is intended to be physically settled, it is a necessary prerequisite that at the time the parties enter into the contract (i) the offer and sale of the underlying securities must be registered in compliance with Section 5 of the Securities Act or an exemption from registration must be available with respect to the underlying securities, and (ii) any applicable contractual provisions restricting the transfer of the underlying securities must be satisfied or otherwise waived. [June 9, 2022]
Swaps and derivatives were heavily scrutinized following the 2008 financial crisis and the Dodd-Frank Act. This article from the July-August 2013 issue of The Corporate Counsel newsletter describes some of the resulting requirements.
As I mentioned earlier this week, our October Conferences are approaching fast. For all of the reasons that I previously mentioned, you do not want to miss our Conferences this year. We will be launching the “1st Annual Practical ESG Conference,” which will provide critical insights at a time when ESG and climate change is top of mind for all of us. We will of course also have our annual “Proxy Disclosure & Executive Compensation” Conferences, which feature a packed agenda of important topics and outstanding speakers. Sadly, no puppets are slated to appear. Suffice it to say, with all that is going on right now at the SEC and in the executive compensation, corporate governance and ESG realms, you need to clear your calendar for the week of October 10th and sign up for these Conferences today.
Early Bird Rate – Act Today!: We are offering a special Early Bird Rate to attend these critical Conferences. Register by the end of today, Friday, June 10th to save on your registration fees. Sign up online, email sales@ccrcorp.com, or call 1-800-737-1271 to secure your spot at our critical 2022 Conferences.
Over the course of this year, I have been taking a walk down memory lane and looking back on 15 years of contributing to CCRcorp publications and programs. Today that journey is done, as I celebrate my 15-year anniversary this month. It has been quite a ride, and I look forward to many more years of sharing my knowledge and experience with you through these fine publications and programs.
I was very fortunate to have spent 13 of the past 15 years traveling around the country with my favorite conference companion, Marty Dunn. During that time, Marty and I were fixtures at the annual “Proxy Disclosure & Executive Compensation” Conferences, serving on substantive panels and doing our comedy routine. We had a great run!
To honor my favorite conference companion, I want to share with you this tribute to Marty that was shown at our 2020 “Proxy Disclosure & Executive Compensation” Conferences. It is a compilation of Marty in his element at the Conferences over the years, entertaining the audience and sharing his deep knowledge of the securities laws. I think my favorite clip from this tribute is Marty’s “PEP Talk” from one of the Conferences several years ago, which was a very personal reflection on trying to remember to celebrate the good things in life. Marty’s remarks serve as a great reminder to us all that life goes by way too fast, and once in a while we should take a moment to enjoy it and celebrate the good times. Today, I celebrate all of the good times that I had with Marty.
While my favorite conference companion is no longer with me at the conferences, I feel like Marty is still there in spirit. I often find myself thinking “what would Marty say?” when speaking at a conference, because he always seemed to find the right approach to deliver the content in an entertaining way. While it will never be the same without him, the best I can do is to continue to honor his legacy at all of our Conferences to come.
As this Cadwalader blog notes, this week the Senate Banking Committee unanimously approved the nominations of Jaime Lizárraga and Mark Uyeda for the open seats on the Securities and Exchange Commission. Approval by the Committee means that these nominees will now advance to the Senate for a confirmation vote, which has not yet been scheduled. The bipartisan support for the two candidates in the Senate Banking Committee bodes well for the upcoming confirmation vote.
SEC Chair Gary Gensler generated a lot of headlines with a speech that he gave at the Piper Sandler Global Exchange Conference on Wednesday. Gensler outlined the SEC’s work in six areas of the equity markets: (i) minimum pricing increment; (ii) national best bid and offer; (iii) disclosure of order execution quality; (iv) best execution; (v) order-by-order competition; and (vi) payment for order flow, exchange rebates, and related access fees.
One of the most controversial topics Gensler discussed was order-by-order competition, and on this issue Gensler noted that he has asked the Staff to make recommendations for the Commission’s consideration around how to enhance order-by-order competition, which could be through open and transparent auctions or other means, unless investors get midpoint or better prices. Changes in this area could compel brokers to route retail investors’ orders to buy or sell stocks into auctions, rather than to “wholesalers” as is often done today.
While it seems that the SEC is always looking at market structure regulations, the meme stock debacle from last year and other significant developments have once again put the spotlight on the market structure issues that Gensler highlighted in his speech.
