Analysis of the vote at Blackrock

Vote analysis:
At Blackrock’s annual meeting on May 25, over 6 million shares were voted in favor of the Steven Silberstein trust proposal on proxy voting practices on compensation. Among those that publicly supported the proposal were pension giants CalPERs (the California Public Employees’ Retirement System) and OPERS (Ohio Public Employees Retirement System).

The proposal also gained the attention of the press. It has been covered by New York Times, the Financial Times, Bloomberg, the Nation, and Financial Advisor, and others.

The shares voted in favor of the proposal represented significant shareholder support, and exceeded a threshold established by the SEC that prevents low-support proposals from being refiled.
However, there were several factors that tampered the overall percentage of support.

– The largest shareholder at Blackrock, PNC which controls 21.2% of shares has a signed agreement that guarantees it will not vote in favor of shareholder proposals. Specifically, “PNC has agreed to vote all of its voting shares in accordance with the recommendation of the Board of Directors on all matters.”

– Blackrock’s attempt to have the proposal excluded at the SEC, and the extraordinary time it took for the SEC to make a decision (discussed more fully below), limited the proponent’s ability to engage on the issue. His attempts to discuss the proposal on its merits were thus turned down by ISS, Glass Lewis and a number of public pension funds. Both ISS and Glass Lewis recommended against the proposal.

– The proposal was new, and its intent may not have been clear to all shareholders. The Pensions and Investment Research Consultant (PIRC), a large European advisor, recommended against it despite their own excellent record on opposing high pay. “If the resolution were intended as a vote of censure for a perceived failure to put principles into practice and a call for a change in guidelines, it should have been framed differently.” The crafting of the language will be revisited in the coming year, though advocates fear that a proposal more explicit may have been excluded at the SEC.

– Some shareholders may have given Blackrock deference because of its power. In an analysis we completed prior to the meeting we noted that the average vote for Blackrock’s directors at the 2015 meeting was in the top 50 of all S&P 500 companies. A number of companies that received higher votes were controlled/dual class voting companies (for example, Hershey). Even on routine issues there may be an element of “Let’s not vote against Blackrock” that goes on given the complicated and complicit nexus of powerful individuals in the finance industry.

Structural issue of timing around no action letters created a significant hurdle. Blackrock submitted opposition to the proposal on January 22, 2016, arguing that even asking for a report on policy considerations was an infringement on the ordinary business of the company. The SEC did not make its decision, disagreeing with Blackrock, until April 6. The late response meant that little time for engagement, and in at least one case eliminated the option due to an advisor’s policy.