A new BlackRock shareholder vote that may rule future proxy battles

It’s annual meeting season for corporations and there is a major change occurring in the way shareholders vote this year that comes from the world’s largest money manager and most influential vote holder: BlackRock.

It is no exaggeration to say the world’s dominant fund companies can control the outcome of shareholder votes. On average, over 15% of outstanding shares in corporations are held by the top four or five asset managers including BlackRock, Vanguard and State Street Global Advisors, according to data from Broadridge Financial Solutions. For some publicly traded companies, the top three fun companies can hold as much as one-third of investor shares. As a result, most shareholder resolutions pass or fail based on how the big fund companies vote. Look no further than upstart activist Engine No. 1, which would not have pulled off its surprise win at ExxonMobil last year without the big money managers.

Yet Vanguard Group founder Jack Bogle warned towards the end of his life that one of the greatest risks the fund giants faced was a creeping monopoly-like power over shareholder votes which would attract more scrutiny from politicians and regulators. It has, from within the market as well. Berkshire Hathaway vice chairman Charlie Munger, never one to hold his tongue, recently blasted the power of index funds. This is one of the reasons that BlackRock is taking a new approach in proxy voting for some of its underlying investors this year: giving them back the votes to decide on their own. BlackRock has said that this year it will make the so-called “pass-through” voting — or what BlackRock calls “voting choice — available to approximately 40% of the $4.8 trillion in index equity assets, to start, with institutional investors in the U.S. and UK.

“Our view is the choices we make available to clients should also extend to proxy voting. We believe clients should, where possible, have more choices as to how they participate in voting their index holdings,” BlackRock said in announcing the initiative.

Pass-through voting may be on the margins in 2022 – it isn’t clear what percentage of those institutional clients will actually take advantage of the new voting power – but it is a fundamental change in the future of shareholder influence that is expected to grow, and experts say is likely extend to BlackRock competitors, including Vanguard and State Street Global Advisors, and ultimately make its way down to retail investors.

“BlackRock and its competitors can also try to use this pass-through voting service as a competitive advantage to their clients and potential clients. We will see other fund managers moving in this direction,” says Edmund Reese, chief financial officer at Broadridge Financial Solutions, which is a BlackRock technology partner on the…