BlackRock picked its battles in fierce proxy season

BOSTON Fri Aug 31, 2012 5:39pm EDT

A BlackRock building is seen in New York June 12, 2009. REUTERS/Eric Thayer

A BlackRock building is seen in New York June 12, 2009.

Credit: Reuters/Eric Thayer

Related Topics

BOSTON (Reuters) - Funds run by BlackRock Inc went along with management during high-profile proxy contests at JPMorgan Chase & Co and Citigroup Inc, new filings show, limiting gains by dissident shareholders during the noisy spring proxy season.

But even as funds of New York-based BlackRock voted for the status quo at the banks, they dissented in other fights such as at Walt Disney Co and Simon Property Group. BlackRock funds also raised the stakes when rejecting executive pay plans by adding votes "against" individual directors, unlike some rival funds.

As the world's largest asset manager, BlackRock's votes matter to the outcome of many corporate elections, which have taken on a new edge since the financial crisis. This week's filings, though they came months after the votes, provide the first detailed look at the company's overall approach in practice. With $1.6 trillion of equity assets, out of $3.6 trillion in total, BlackRock potentially can sway a close proxy battle.

BlackRock's approach "is not carpet-bombing, it's more smart-bombing," said Robert McCormick, chief policy officer for Glass, Lewis & Co., which advises institutional investors on proxy votes. "They're focusing their ire on the real outliers," he said.

BlackRock Chief Executive Laurence Fink told companies at the start of the year his firm was "willing to support unconventional approaches" to governance so long as they serve shareholders.

Though final tallies are not available, votes shown in filings this week suggest BlackRock often gave executives the benefit of the doubt.

For instance, filings show one of its largest funds, the $52.6 billion BlackRock Global Allocation Fund., and others voted with management at Citigroup to approve the pay of named executives like CEO Vikram Pandit. At Citigroup's meeting on April 17 just 45 percent of stock was voted to back Pandit's 2011 pay of $15 million, a surprise that showed investors in a fighting mood.

The notion was reinforced the next month when 40 percent of JPMorgan shares were voted in support of a union-sponsored measure to strip Chief Executive Jamie Dimon of the additional title of chairman. BlackRock Global Allocation voted against the measure at JPMorgan, however, and supported JPMorgan's pay plan.

But BlackRock's less-frequent votes against individual board members like those who sit on compensation committees can be even more powerful, said Paul Hodgson, chief research analyst at governance research firm GMI Ratings. The so-called "Say on Pay" votes now required by financial reforms are only advisory, while directors who lose elections often must step down.

"It is far more effective," Hodgson said of BlackRock's strategy to link its dissenting votes.

Like other fund companies, BlackRock would not make executives available to be interviewed about the votes. Under Fink, BlackRock has put much effort into beefing up its governance efforts and has a staff of more than 20 specialists reviewing the practices of companies in which it holds stock.

According to its annual report on governance, BlackRock aims for its funds to vote consistently and to take "a universal view," which would make votes filed to date representative.

Often BlackRock voted to back big companies under fire on pay. According to the filing, and a tally compiled by Los Angeles consulting firm Semler Brossy, of the 10 largest companies that failed to gain a majority of shareholder support on pay this year, Global Allocation voted with management in three cases and recorded no votes in six other cases, where it likely did not own shares.

But Global Allocation did break with management at one other company on the list, and bared its teeth. The fund vote against pay at Simon Property Group, the world's largest real estate firm, joining 73 percent of shares voted against management at its May 17 meeting amid anger at a $120 million retention award given its chief executive. The BlackRock fund also voted "against" four directors, each on the compensation committee. Simon Property leaders did not return messages.

Disney was another large company where the BlackRock fund voted "against" executive pay, and voted against compensation committee members. At its meeting on March 13, 57 percent of shares voted were in support of Disney's pay plan.

BlackRock proxy voting is overseen by Michelle Edkins, head of corporate governance. She declined to comment.

In a previous interview late last year, Edkins said it maintained "a high threshold for voting no on pay" since when it does so, it also votes against responsible compensation committee members.

BlackRock sometimes backs management "in the short term, while they work through changes over the long term," spokeswoman Lauren Post said. "When we engage successfully and companies adjust their approach, most observers are never aware of that engagement," she added.

(Reporting By Ross Kerber; editing by Aaron Pressman and M.D. Golan)

FILED UNDER: