BlackRock 2019 CorpGov Voting Guide

BlackRock 2019 Proxy Voting Guide

BlackRock 2019 annual meeting is May 23. To enhance long-term shareholder value, vote AGAINST directors Murry Gerber; Jessica Einhorn; William Ford; Margaret Johnson, Cheryl Mills; Gordon Nixon; Ivan Seidenberg; and Marco Antonio Slim Domit, as well as pay and the auditor. Vote FOR shareholder proposals to report lobbying and move to a simple majority voting standard.

BlackRock, Inc. is a publicly owned investment manager with $6.5T under assets. The firm provides services to institutional, intermediary, and individual investors including corporate, public, union, and industry pension plans, insurance companies, third-party mutual funds, endowments, public institutions, governments, foundations, charities, sovereign wealth funds, corporations, official institutions, and banks.

Most shareholders do not vote.  Reading through 70+ pages of the proxy takes too much time. Your vote will make only a small difference but could be crucial. Below, how I voted and why. If you have read these posts related to my portfolio and proxy proposals for the last 22 years and trust my judgment, skip the 8 minute read. See how I voted my ballot. Voting will take you only a minute or two. Every vote counts.

I voted with the Board’s recommendations 45% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).

Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.

BlackRock 2019: ISS Rating

From the Yahoo Finance profile: BlackRock, Inc.’s ISS Governance QualityScore as of April 1, 2019 is 4. The pillar scores are Audit: 1; Board: 4; Shareholder Rights: 5; Compensation: 7.

Corporate governance scores courtesy of Institutional Shareholder Services (ISS). Scores indicate decile rank relative to index or region. A decile score of 1 indicates lower governance risk, while a 10 indicates higher governance risk. We need to pay close attention to Shareholder Rights and Compensation.

Sustainalytics’ ESG Ratings on Yahoo Finance measures how well companies proactively manage their most material environmental, social and governance issues. The following is a graphic assessment of BlackRock’s ability to mitigate ESG risks. The ESG Rating is a quantitative score on a scale of 1-100, based on a balanced scorecard system.

BlackRock 2019 ESG

BlackRock 2019 Proxy Voting Guide: Board Proposals

1. Directors

Egan-Jones Proxy Services recommends Against Murry S. Gerber (1I); Jessica P. Einhorn (1E); William E. Ford (1G); Margaret L. Johnson (1J) Cheryl D. Mills (1L); Gordon M. Nixon (1M); Ivan G. Seidenberg (1O); Marco Antonio Slim Domit (1P). Murry S. Gerber has lost independence, according to Egan-Jones’ Proxy Guidelines, because he has more than 10 years of tenure.  Egan-Jones recommends against the other named directors because they serve on the compensation committee and Egan-Jones recommends against the Pay item, which they recommended.

Vote AGAINST Murry Gerber; Jessica Einhorn; William Ford; Margaret Johnson, Cheryl Mills; Gordon Nixon; Ivan Seidenberg; and Marco Antonio Slim Domit.

3. Executive Compensation

BlackRock’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Chairman and CEO Laurence D. Fink at $26.5M. I am using Yahoo! Finance to determine market cap ($69B) and define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. BlackRock is a large-cap company.

mylogiq logoAccording to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2014. According to MyLogic, the median CEO compensation in the S&P 500 last year was $12.3M. Mr. Fink’s pay package puts him in the top 10%. Yet, BlackRock shares underperformed the S&P 500 over the most recent one, two, and five year time periods. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 195:1.

Egan-Jones Proxy Services uses a proprietary rating compensation system to measures wealth creation in comparison to other companies. “some concerns” is their compensation rating for BlackRock. They recommend a vote of Against for the say-on-pay item.Egan-Jones

Given that recommendation, far above median pay, consistently poor performance and my concern for growing wealth inequality:

Vote AGAINST.

4. Ratify Auditors

I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. Egan-Jones recommends voting against the auditor if they served for seven years. Independence becomes compromised by that time. Deloitte & Touche has served more than seven years. No other issues appear significant.

Vote AGAINST.

BlackRock 2019: Shareholder Proposals

5. Shareholder Proposal: Report on Lobbying Expenses

This good governance proposal comes from Unitarian Universalist Association. “We are concerned that BlackRock’s lack of disclosure presents reputational risks when its lobbying contradicts company public positions.” Egan-Jones believes the requested report is unnecessary and would require expenditures without providing any meaningful benefit to the shareholders. I agree with the Unitarians and routinely vote for proposals to disclose both political and lobbying expenses.

Vote: FOR

6. Shareholder Proposal: Simple Majority Vote Standard

This proposal from me (James McRitchie), so of course I voted FOR. Egan-Jones notes, “the advantages of eliminating supermajority provisions outweigh the benefits of maintaining it as a voting standard. They recommend FOR.

I assume many voting against the proposal have bought into BlackRock’s argument  that their three supermajority requirements are “protecting the majority voting standard generally applicable for amending the Company’s Charter.” However, far from being a simple majority standard, amendment requires a majority vote of shares outstanding and many shares are not voted.

Vote FOR.

BlackRock 2019 CorpGov RecommendationsProxy Insight

Proxy Insight reported on seven funds. Click on the graphic below to expand it. You may find additional fund votes by looking up funds in our Shareowner Action Handbook.

BlackRock 2019 ProxyInsight

CorpGov Votes:

  1. Directors: AGAINST Murry Gerber; Jessica Einhorn; William Ford; Margaret Johnson, Cheryl Mills; Gordon Nixon; Ivan Seidenberg; and Marco Antonio Slim Domit.
  2. Executive Pay: AGAINST
  3. Auditor: AGAINST
  4. Report Lobbying: FOR
  5. Simple Majority Vote Standard: FOR

BlackRock 2019: Issues for Future Proposals

SharkRepellentLooking at SharkRepellent.net for anti-shareholder provisions:

  • Shareholders cannot call special meetings.
  • Supermajority vote requirement (75% or 80%) to amend certain charter provisions.

BlackRock 2019: Mark Your Calendar

Shareholders who wish to present proposals for inclusion in the proxy materials to be distributed by us in connection with our 2020 Annual Meeting of Shareholders must submit their proposals to BlackRock’s Corporate Secretary on or before December 14, 2019.

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,” chosen by aspiration. 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. For more on the subject, see CEO Pay Machine Destroying America.

   

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