Let Me Vote Those Shares for You

Published in the Federalist Society.

BlackRock’s idea to give institutional clients more control over how shares of stock are voted could be a good step. Some, such as Alex Pollock, say that it is still a ladder with the first rung above the head of most investors.

The fundamental idea of owning stock in a corporation is that shareholders acquire, along with their investment, ownership rights in the company, including the right to vote on company questions commensurate with their investment. These questions can include composition of the board of directors, compensation for company executives, company auditors, and company investment and disclosure policies, among others.

As Alex Pollock notes in an October 13 letter to the editor of the Financial Times, BlackRock acknowledges, “The money we manage is not our own, it belongs to our clients.” Hence, BlackRock’s new policy idea.

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BlackRock hopes to relieve some of that pressure by passing it on to investment funds that place their clients’ money with BlackRock. As Alex Pollock explains in his Financial Times letter, however, “BlackRock is handing zero voting power to the real owners of the shares which it manages as agent.” It is making it easier for others—the fund managers of your investments—to vote your shares, but they do not own your shares. You do, and the BlackRock proposal does not reach to you to learn what you think.

Your broker-dealer cannot vote your shares. In many cases, though, the managers of funds through which you own stock can. They can use your investments to vote as if they were their investments. That can give them a lot of financial and, increasingly, political clout. With your money, they can pursue their agenda, not yours.

Alex Pollock recommends in his letter that “All investment agents, both broker-dealers and asset managers alike, should have the same requirements: no voting of shares by the agents without instructions from the principals.” “From the principals” means from you, the shareholder. That is the requirement for broker-dealers. Why should it not apply to the fund managers who, without your money, would have nothing but their own?