BlackRock

BlackRock: Proxy Score 65

BlackRockBlackRock, Inc. (NYSE:BLK), one of the stocks in my portfolio, provides investment management, risk management and advisory services for institutional and retail clients worldwide. Their annual meeting is coming up on 5/28/2015. ProxyDemocracy.org had the votes of one fund when I checked on 5/19/2015. I voted with Board recommendations 65% of the time.

View Proxy Statement. Read Warnings below. What follows are my recommendations on how to vote the BlackRock 2015 proxy to enhance corporate governance and long-term value. 

BlackRock: ISS Rating

From Yahoo! Finance: BlackRock, Inc.’s ISS Governance QuickScore as of May 1, 2015 is 7. The pillar scores are Audit: 2; Board: 8; Shareholder Rights: 7; Compensation: 6. ISS scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures. That gives us a quick idea of where to focus…. Board and Shareholder Rights.

BlackRock: Compensation

BlackRock Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO/Chair Laurence D. Fink at about $28.9M in 2014. I’m using Yahoo! Finance to determine market cap ($62B) and Wikipedia’s rule of thumb regarding classification.

BlackRock is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $10.1 million in 2013, so BlackRock’s pay was substantially higher than median. BlackRock shares outperformed the S&P 500 over the latest 1, 2, 5 and 10 year periods.

MSCI GMIAnalystThe MSCI GMIAnalyst report I reviewed gave BlackRock an overall grade of ‘C.’ According to the report:

  • Unvested equity awards partially or fully accelerate upon the CEO’s termination. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.
  • The company has not disclosed specific, quantifiable performance target objectives for the CEO. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.
  • The company pays long-term incentives to executives without requiring the company to perform above the median of its peer group. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
  • The CEO’s total summary pay for the last reported period was more than three times the median pay for the company’s other named executive officers. Such disparity in pay raises concerns regarding the company’s succession planning process and the distribution of responsibilities among the executive management team.
  • A decline has occurred in the CEO’s equity holdings in the company over last year. Diminished executive exposure to company stock may work to reduce the alignment between the CEO’s interests and those of shareholders.

I voted Against the pay and stock plans.

BlackRock: Board of Directors and Board Proposals 

I normally vote against the directors on the compensation committee, since they recommended the pay package and stock plan to the full board: David H. Komansky, Chairperson, Murry S. Gerber, James Grosfeld, Sir Deryck Maughan and Cheryl D. Mills.

BlackRock: Auditor

According to the GMIAnalyst report:

The BlackRock board of directors does not currently include a fully independent audit committee, a serious concern for company shareholders. We note that 87.1% of company boards in this market maintain a fully independent audit committee, which is critical in providing appropriate oversight of financial reporting. The company’s independent auditor is Deloitte & Touche LLP.

Despite the above, I voted to ratify the auditor, since I saw no potential conflicts of interest.

Shareholder Proposals at BlackRock

With regard to Mr. Eric Cohen’s proposal to avoid investing in companies that contribute to genocide and crimes against humanity, while I certainly agree with the goal of not supporting such activities, I generally don’t see divestment as the best route. Instead, BlackRock should raise its voice against such activities. It would have no voice with divestment. I would favor reports or signing onto applicable principles and voted against the proposal.

I support and voted for AFSCME’s proposal seeking a report on lobbying activities. See my post from March, Investors Seek Disclosure of Corporate Lobbying Expenses for a full explanation.

CorpGov Recommendations for BlackRock – Votes Against Board Position in Bold

# PROPOSAL TEXT CorpGov CALVERT 
1a Elect Director Abdlatif Yousef Al-Hamad For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1b Elect Director Mathis Cabiallavetta For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1c Elect Director Pamela Daley For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1d Elect Director William S. Demchak For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1e Elect Director Jessica P. Einhorn For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1f Elect Director Laurence D. Fink For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1g Elect Director Fabrizio Freda For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1h Elect Director Murry S. Gerber Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1i Elect Director James Grosfeld Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1j Elect Director Robert S. Kapito For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1k Elect Director David H. Komansky Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1l Elect Director Deryck Maughan Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
11m Elect Director Cheryl D. Mills Against For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1n Elect Director Thomas H. O’Brien For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1o Elect Director van G. Seidenberg For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1p Elect Director Marco Antonio Slim Domit For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1q Elect Director John S. Varley For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
1r Elect Director Susan L. Wagner For For
Calvert Social Index Fund: There is both gender and racial diversity on the board.
2 Amend Omnibus Stock Plan Against For
Calvert Social Index Fund: The plan warrants shareholder approval.
3 Ratify Named Executive Officers’ Compensation Against Against
Calvert Social Index Fund: The magnitude of CEO pay exceeds the 75th percentile of the company’s peer group.
4 Ratify Deloitte & Touche LLP as Auditors For For
Calvert Social Index Fund: Less than 25 percent of total audit fees paid to the auditor were attributable to non-audit work.
5 Prevent Investments Contributing to Genocide or Crimes Against Humanity Against For
Calvert Social Index Fund: Calvert supports shareholder resolutions seeking an improvement in a company’s human rights standards or policies.
6 Report on Lobbying Payments and Policy For For
Calvert Social Index Fund: A vote FOR this resolution is warranted, as additional information on the company’s direct and indirect lobbying payments and trade association oversight mechanisms would enable shareholders to better assess the company’s comprehensive lobbying-related activities and management of related risks and opportunities.

Corporate Governance Issues at BlackRock

Looking at SharkRepellent.net for provisions unfriendly to shareowners:SharkRepellent

  • Classified board with staggered terms.
  • Shareholders cannot call special meetings.

BlackRock Proxy Proposal Deadline for Next Year

Mark your calendar to submit future proposals:

Stockholders who, in accordance with the Exchange Act Rule 14a-8, wish to present proposals for inclusion in the proxy materials to be distributed by us in connection with our 2016 Annual Meeting must submit their proposals to BlackRock’s Corporate Secretary on or before December 18, 2015.

Apart from the Exchange Act Rule 14a-8 that addresses the inclusion of stockholder proposals in our proxy materials, under our bylaws, certain procedures are provided that a stockholder must follow to nominate persons for election as directors or to introduce an item of business at an annual meeting of stockholders. These procedures provide that nominations for director nominees and/or an item of business to be introduced at an annual meeting of stockholders must be submitted in writing to: BlackRock, Inc., Attn: Corporate Secretary, 55 East 52nd Street, New York, New York 10055

Warnings

Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.

Economic performance explains only 12% of variance in CEO pay. More than 60% is explained by company size, industry, and existing company pay policy. None of those are performance driven. Additional findings by Mark Van Clieaf of Organizational Capital Partners, as reported in The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design:

  • Some 75% of companies have no balance sheet or capital efficiency metrics in their disclosed performance measurement and long-term incentive plan design.
  • Only 17% of companies specifically disclose return on invested capital or economic profit as a long-term performance measure for long-term executive compensation.
  • Some 47% of S&P 1500 companies over the last five years (2008 – 2012) did not generate a positive cumulative economic profit or return on invested capital greater than their cost of capital.
  • More than 85% of the S&P 1500 have no disclosed line of sight process metrics aligned to future value such as innovation and growth drivers.
  • Only 10% of all long-term incentives have a disclosed longest performance period for named officers of greater than three years.

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