Just before the holidays got going, BlackRock updated their voting policies and engagement priorities. Here’s a laundry list of those updated documents:
- Global Principles for Benchmark Policies
- Engagement Priorities Summary for Benchmark Policies
- Proxy voting guidelines for Benchmark Policies – U.S. securities
- Our approach to engagement on board quality and effectiveness
- Our approach to engagement on corporate strategy, purpose, and financial resilience
- Our approach to engagement on incentives aligned with financial value creation
- Climate-related risks and the low-carbon transition
- Our approach to engagement on natural capital
- Our approach to engagement on human capital management
- Our approach to engagement on corporate human rights risks
- Global Engagement and Voting Guidelines
For the changes to BlackRock’s Voting Benchmark Policies, here are eight notable things to be aware of – courtesy of Cooley’s Beth Sasfai, Michael Mencher and Jordan Cohen:
- The policy updates remove both (a) numerical diversity targets (i.e., boards should aspire to 30% diversity of membership and have at least 2 women directors and 1 director from an underrepresented group) and (b) the related disclosure-based voting policy (i.e., BlackRock previously would consider taking voting action if a company did not adequately explain its approach to board diversity) – but provides that BlackRock may consider taking voting action if an S&P 500 board is not sufficiently diverse (BlackRock includes a footnote in the policy update suggesting that 30% diversity may still be the expectation).
While these changes suggest greater flexibility and an overall change of tone from BlackRock, it is possible that these updates don’t necessarily signal a major policy change. - Added language to flush out the term “appropriately qualified” boards.
- Added the statement: “If any strategic targets are significantly missed or materially restated, we find it helpful when company disclosures provide a detailed explanation of the changes and an indication of the board’s role in reviewing the revised targets.”
- Consistently added the term “financial” before “value creation” throughout the policies.
- The concept of materiality in the sustainability context has been clarified. The relevant footnote states: “By material sustainability-related risks and opportunities, we mean the drivers of risk and financial value creation in a company’s business model that have an environmental or social dependency or impact. Examples of environmental issues include, but are not limited to, water use, land use, waste management, and climate risk. Examples of social issues include, but are not limited to, human capital management, impacts on the communities in which a company operates, customer loyalty, and relationships with regulators.”
- For companies for whom climate risk is material, recognizes the value of climate-related financial disclosures to investors’ understanding of how a company is managing these risks, noting disclosures may be a market “best practice,” even in jurisdictions where climate reporting is not mandatory.
- For shareholder proposals, changed its position to: “BIS is likely to support shareholder proposals that request disclosures that help us, as long-term investors on behalf of our clients, better understand the material risks and opportunities companies face and how they are managing them, especially where this information is additive given the company’s existing disclosures. We may also support shareholder proposals that are focused on a material business risk that we agree needs to be addressed and the intended outcome is consistent with long-term financial value creation.”
- Flushed out this concept for equity compensation: “We find it helpful when companies submit their equity compensation plans for shareholder approval more frequently than required by listing exchange standards to facilitate the timely consideration of evolving plan governance practices. Particularly when share reserve requests grow significantly versus prior plans, boards should clearly explain any material factors that may potentially contribute to changes from the company’s past equity usage. We may support an equity plan share request if we determine that support for such plan is in the best interests of shareholders; however, we may also vote against members of the compensation committee to signal our concerns about the structure or design of the equity compensation plan or the company’s equity grant practices and the imprudent use of equity.”
It’s also notable that BlackRock has created a new initiative called “BlackRock Active Investment Stewardship,” known as “BAIS.” BAIS is described as a specialized team within the portfolio management group that oversees stewardship activities for actively managed funds, including engagement and voting, on behalf of clients with active strategies globally (these funds are a small slice of BlackRock’s overall base). Along with client-directed voting, this should continue the push to distinguish BlackRock’s voting power of its actively managed funds from its passive investments.
Authored by
Broc Romanek