The exponential power of exchange-traded funds (ETFs) is causing concern in Washington. A law has been tabled in the US Senate to allow customers of BlackRock, Vanguard and other State Streets to vote at the general meetings of the companies in which they invest, through these funds. Today, the “big 3” hold 25% of the voting rights of the S&P 500.
“This would give power to the real decision-makers, to the real owners of these shares, while allowing the achievement of important objectives”, underlined Tuesday the senator Dan Sullivan, who carries this project, during a parliamentary hearing. This Republican representative from Alaska took up the subject by “seeing the power taken by the biggest American banks and insurance companies over the oil companies in Alaska. »
The law would prohibit asset managers from voting on shareholder resolutions and the election of directors at meetings unless they have obtained the explicit consent of their clients. A text criticized by some because it would add a lot of complexity: passive management specialists would then have to manage hundreds of thousands of decisions from their clients.
Vector of imbalances?
It would also give more power to certain investors who would not be affected by the measure, such as activist funds and hedge funds. Preventing big asset managers from voting would “disenfranchise and disproportionately amplify the leverage of other investors and advisers,” countered Ben Colton, head of shareholder engagement at State Street Global Advisors.
The motivations of the text are also questioned: for the conservatives behind the project, it is above all a question of sanctioning BlackRock because the giant has spoken out for environmental resolutions in recent months – at Exxon Mobil, for example , where he voted in favor of three directors who campaign for ecological transition. BlackRock, however, recently indicated that it would vote less in favor of the “green” resolutions tabled by shareholders in 2022 because, poorly crafted, they “are not compatible with the long-term financial interests” of its clients.
More choices for customers
Since the debate stirred Washington and Wall Street, other proposals have been made. Some, like Caleb Griffin, a professor at the University of Arkansas and interviewed on Tuesday, suggest that index funds give their clients choice. They could vote themselves, be represented by an agency on a voting board, or transfer their voting rights to the fund.
Under pressure, BlackRock said on Monday it was now allowing nearly half of US institutional clients of its equity ETFs to exercise their voting rights. Out of the 2.300 billion dollars of eligible assets, the option was finally activated on around a quarter of the assets.
“Our ambition is to make voting choice convenient and effective for all investors, and we are working with policymakers and industry players to extend that choice to our clients,” said Salim Ramji, director of index investments at BlackRock. In the other two, the possibility also exists and we say we are ready to extend it.
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