Opinion:
26 May 2023 |: 19:40
BlackRock, the world’s largest asset manager, received an appropriate “C” grade on whether they put politics before their clients’ financial interests.
REUTERS:
Investors thought they had a reason to celebrate. A new report rates Wall Street firms on whether they put politics ahead of their clients’ financial interests, and many firms received passing marks.
BlackRock, the world’s largest asset manager, received an appropriate “C” score. Investment giant Vanguard earned a perfect “A.”
But if the news seems too good to be true, that’s because it is.
While the study sheds light on the critical question of whether Americans’ retirement accounts, pension funds and other investments are being hijacked for political purposes, it lacks the in-depth analysis needed to show what’s really going on.
Here’s how the study worked. The Unleashing Prosperity Committee examined how Wall Street firms voted on corporate America’s 50 most extreme environmental, social and governance (ESG) proposals last year.
The suggestions were chosen because they have nothing to do with helping the company’s bottom line.
For example, one ordered Chevron to conduct a racial equity audit because Chevron allegedly funds the Richmond police and thereby contributes to police brutality.
Another told Chubb to stop selling insurance to fossil fuel companies.
The researchers then looked at how the asset managers voted and rated them accordingly.
There is much that the report is correct. dozens of firms, including Charles Schwab and State Street, earned grades of “D,” “F,” or “F-.” They certainly deserved it. And more.
As the authors point out, failing to vote in the financial interests of your clients is not only wrong, it’s often illegal. That’s because asset managers have what’s called a “fiduciary duty” to put clients first.
If asset managers vote instead of their political preferences, investors can sue.
But elsewhere the study falls short.
The researchers looked at only the 50 most extreme proposals, ignoring the rest.
BlackRock, for example, votes on CEO compensation at hundreds of companies and often asks them to tie CEO pay to achieving BlackRock’s ESG goals.
Vanguard voted for plastic reduction reports at Jack in the Box, racial equity audits at American Express, and emissions reductions at ConocoPhillips, Phillips 66, Rio Tinto, and more.
The study also ignores asset managers’ votes to elect (or remove) a company’s board of directors, even though directors have far more influence than a single shareholder’s proposal ever could.
On that front, BlackRock and Vanguard routinely pick leaders who put social issues above shareholder value, including Salesforce’s Marc Benioff and ousted Disney CEO Bob Chapek.
BlackRock is also not shy about its motives. In 2022, he boasted that he had voted out 936 company directors for lack of diversity and another 176 for climate concerns.
The study also doesn’t take into account what goes on behind the scenes.
Vanguard, for example, voted against a proposal on gender pay at Cigna, but only after receiving assurances that Cigna was “addressing the underlying concern” by hiring outside lawyers to review its policies.
Similarly, BlackRock voted against a proposal to cut emissions at Chevron, but only because Chevron had already agreed to reduce its carbon footprint.
These asset managers do not put clients first; they use the threat of upcoming ESG votes to get smaller, though still problematic, ESG concessions.
Praising these voices is like praising an armed robber for never pulling the trigger.
Perhaps most fundamentally, the ranking fails on its own terms.
According to the study, an “A” rating means an asset manager has “voted in the best interests of its clients at least 90% of the time.”
However, the law does not require asset managers to vote as fiduciaries in 90% of cases; it requires them to do so 100% of time.
Look at it. an employee who steals every 10 days will be fired. an asset manager who steals client votes with the same frequency or just once deserves the same fate.
Giving these managers an “A” misleads investors, many of whom have already lost confidence in a system that abused their investment funds.
There is no doubt that the commission is doing important work. And it’s easy to see why it’s graded on a curve.
A report where everyone fails is pointless and unlikely to inspire change.
Give good marks to asset managers who vote with at least the best interests of their clients in mind majority Time will hopefully encourage them to do so all on time, especially now that they know the commission is keeping score.
But until then, investors should hold on to the champagne.
Justin Danhoff is Strive’s Executive Vice President and Head of Corporate Governance.
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