Letter: Principals must have the final say in how funds use their votes

Published in the Financial Times.

Michael Mackenzie and Attracta Mooney write that BlackRock is to hand clients a greater say in proxy voting (Report, October 8). It’s a good idea in general, but in fact BlackRock is handing zero voting power to the real owners of the shares which it manages as agent.

Indeed, BlackRock represents a giant and profound principal-agent conflict. It should not be voting any shares at all without instructions from the real owners, whose money is really at risk. As BlackRock itself has stated: “The money we manage is not our own, it belongs to our clients.” For sure. But the other asset managers to whom BlackRock wants to give votes are also not the ones whose money is at risk — they are mere agents, like BlackRock itself.

The real owners whose own money is at risk are the owners of the mutual fund and exchange-traded fund shares and the beneficiaries of pension funds, not their hired agents.

Large proportions of these principals certainly do not want their shares voted according to the political preferences of BlackRock’s management — or more cynically, they do not want the possibility of having their shares voted to advance the political strategies of that management.

The voting instructions of the principals for all shares should be solicited exactly as broker-dealers must solicit instructions from the real owners of the shares that the brokers hold in street name. Without such instructions, the shares should not be voted. Surely the systems for this process are well within the capability of our wondrous computer age.