Larry Fink, the chairman and chief executive of BlackRock, is right to demand that public companies behave more responsibly even as investors are more likely keep their money in passive funds, said Robin Wigglesworth in the Financial Times.
“Every company must not only deliver financial performance, but also show how it makes a positive contribution to society,” Fink wrote this week in his yearly letter to the boards of companies. He said the world’s biggest fund manager would double its team of people who focus on corporate stewardship from 32 people in the next three years.
“The move to beef up BlackRock’s corporate governance group comes amid mounting concerns about the rising tide of passive investing, which ploughs trillions into companies but brings little in the way of engagement with corporate executives and boards on important issues,” Wigglesworth said.
Fink’s sentiment echoes sentiment by Paul Singer of Elliott Management, who last year said passive investing was “devouring capitalism.”
Taking a greater role in corporate governance “matters because passive investors are in practice permanent capital. Unlike stockpickers they cannot sell their holdings if they dislike a board’s composition or management’s policies,” Wigglesworth said. “So their only options are to ignore their rights as shareholders or to embrace them.”
Fink’s letter said the responsibility of asset managers “goes beyond casting proxy votes at annual meetings — it means investing the time and resources necessary to foster long-term value.”
Fund companies have taken steps to demand that companies be managed better. Vanguard last year voted against the re-election of three of Well Fargo’s directors, including its chairman, after the bank’s phantom accounts scandal. That’s in contrast to Warren Buffett, the bank’s biggest shareholder, who backed the entire board’s re-election.
BlackRock and Vanguard last year forced energy giant ExxonMobil to start reporting on the impact of global measures to address climate change.
“Given the passive investment industry’s remarkable growth trajectory, more will need to be done to address concerns that it is not just passive but lethargic,” Wigglesworth said. “BlackRock’s move is therefore an encouraging step.”
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