Thursday, November 3, 2022

"Proxy power to the people?" (ETF holders voting the underlying stock)

Important (at least we think so*) business but a sidestep of one idea that was being kicked around, that shares held in an ETF don't vote at all.

From FT Alphaville:

BlackRock and Vanguard want to give ordinary investors a say

Of all the interesting, simplistic, or downright moronic arguments aimed against passive investing over the years, that the phenomenon would lead to an unhealthy concentration of corporate power always felt like one of the stronger ones. 

 You don’t have to be a believer in the “common ownership” theory (that large cross-industry shareholding might diminish a company’s competitive zeal) to feel a little uneasy at the idea of just a handful of asset managers exerting de facto control over swaths of the economy. 

Both the right and left have been savaging big asset managers like BlackRock, Vanguard and State Street — the Big Three of passive investing — either because of their perceived inaction or hyperactivity on a range of subjects. 

Even Jack Bogle, the founder of Vanguard, admitted before he passed away in 2019 that the emerging oligopoly of index fund giants that might in the foreseeable future control the majority of the US stock market would not “serve the national interest”. This week therefore feels like a bit of a small moment. A small-m moment, but a moment nonetheless. From the FT this morning:....

....MUCH MORE

That's a very good introduction to the situation and the writer, FT Alphaville's editor, Robin Wigglesworth just keeps building from there.
*Previously:
July 2017
Governance: The Growing Concentration of ETF (and mutual fund) Voting Power
Something that doesn't come up in casual conversation but may be important.
October 2018
Some Thoughts on Environmental, Social & Governance Investing (ESG)
It is still an open question whether ESG investing is more than marketing/packaging by asset gatherers.
And beyond that, it is still an open question whether ESG is a rational approach to achieve the stated goals of its proponents....
December 2020
Index Funds, Political Agendas and The Public Interest
A profoundly insightful look at power in society.
March 2021
"The Conflict Between BlackRock’s Shareholder Activism and ERISA’s Fiduciary Duties"
A thought-provoking discussion of legal cross-currents....
January 2022:
Voting Rights For the Underlying Shares In an ETF: Effective January 1 BlackRock Will Allow Institutional Investors In Its Funds To Vote The Proxies
April 2022
BlackRock And Larry Fink's Power (BLK)
We've been picking at this scab in a rather desultory fashion for a while, with such posts as "Index Funds, Political Agendas and The Public Interest" and ""Charlie Munger doesn’t think Larry Fink should be running the world." (BRK; BLK)".

We'll continue hopscotching around for a couple more months before tying it all together. So today's installments: a look back at "The Conflict Between BlackRock’s Shareholder Activism and ERISA’s Fiduciary Duties" via Columbia Law School's CLS Blue Sky blog,
May 2022
Introduced In The U.S. Senate: "Investor Democracy is Expected (INDEX) Act" To Regulate BlackRock et al. Proxy Voting
As Bill Clinton's campaign strategist James Carville might have said: "It's the voting, Stupid."
All the rest of the arguments against index funds pale in comparison, or are actually in error.
It's the proxy voting that gives BlackRock the real power and it's the voting of proxies issue we focus on.
May 2022
"Meet the three university friends that want to give voting rights to BlackRock shareholders"

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