BlackRock, a Shareholding Giant, Is Quietly Stirring

Once settled, Yumi Narita started describing the disappointing qualities of a big entertainment company she’d been checking out. “I’m inclined not to trust this compensation committee,” she told the group.  “Year-over-year, they pay their C.E.O. more, and the metrics are often questionable.”

There were sympathetic nods around the room. Ms. Narita is one of about 20 analysts on the corporate governance team at BlackRock, the world’s largest asset manager. BlackRock’s size is mind-boggling. With almost $4 trillion under management, it is, according to a recent University of Michigan study, the single largest shareholder in one of every five United States companies. It manages money from pension funds and endowments as well as retail investors, controls large stakes in companies like JPMorgan Chase, Wal-Mart and Chevron and owns 5 percent or more of roughly 40 percent of all publicly traded companies in the country.

These investments give BlackRock tremendous influence, particularly now, during proxy season. At this time of year, public companies hold annual meetings, and shareholders vote on executive pay and elect corporate directors. Inside BlackRock, the small group of analysts led by Ms. Edkins meets every morning for about an hour, hashing out how BlackRock will vote its clients’ shares in hundreds of contests, zeroing in on directors they feel have been around too long, or ones who they think are overpaying executives.

These analysts have a language of their own, casually throwing around terms like “overboarding,” for when directors serve on multiple boards, possibly spreading themselves too thin; “engagement,” when a problem reaches a critical stage and merits a visit from a BlackRock analyst; and “refreshment,” when engagement doesn’t work and a director needs a heave-ho.

BlackRock is no activist investor. In fact, it’s far from it. It has never sponsored a shareholder proposal, and it rarely broadcasts its actions. Ms. Edkins says the firm generally votes against a director or a company proposal only when a behind-the-scenes “engagement” has failed.

A number of public pension funds and activist shareholders argue that BlackRock could use its influence to greater effect and say it sides with management far too often. It received a failing grade from the A.F.L.-C.I.O. in a 2012 survey; BlackRock voted with the federation just twice in 32 shareholder votes on issues that the union sees as important to the trustees of union pension funds.

 “We believe shareholders have the power and the obligation to use every tool at their disposal to encourage greater accountability,” said Brandon Rees, acting director of the A.F.L.-C.I.O. Office of Investment. “It’s disappointing that such a large company like BlackRock votes for so few shareholder resolutions.”

There is agreement, however, that the firm has become more active in recent years, as other shareholders, too, have been expressing themselves more forcefully. It’s easy to be cynical about the value of voting on what are ultimately nonbinding resolutions that companies can ignore. But investors can now wield more power than in the past, partly because of recent laws that require companies to hold a vote on issues like executive pay. On Tuesday, in fact, shareholders of JPMorgan Chase will meet in Tampa, Fla., where the company is expected to announce the results of a the vote on an unusually tense confrontation over a motion to split the roles of chairman and C.E.O., both now held by Jamie Dimon.

BlackRock’s influence over the governance of corporations has increased as the company itself has expanded. It gained prominence during the financial crisis when Laurence D. Fink — a BlackRock co-founder and its current chief executive — became the government’s go-to guy to analyze and manage hard-to-value assets. BlackRock expanded this expertise into a separate business, advising troubled governments around the world, like Greece and Ireland. In 2009, the firm bought Barclays Global Investors in a $13.5 billion cash-and-shares deal that transformed BlackRock overnight into the world’s largest asset manager. BlackRock controls both actively managed shares, and millions more that sit in exchange-traded funds.

“BlackRock is the silent giant,” said Gerald Davis, a professor of management and organizations at the University of Michigan. He said the firm had almost no name recognition, despite managing more money than household names like Vanguard and Fidelity. “No one really knows about BlackRock but they are incredibly powerful.”

MS. EDKINS, an understated 43-year-old from New Zealand, leads BlackRock’s corporate governance effort. She got her first taste of annual reports and the corporate documents that would become her future at the University of Otago as an economics teaching assistant, where she analyzed annual reports to see which companies were disclosing their environmental impact. The experience of parsing often-dry sentences didn’t immediately turn Ms. Edkins into a corporate-governance geek. Instead, she landed a job at New Zealand’s central bank and later at the British High Commission in Wellington.

Article source: http://www.nytimes.com/2013/05/19/business/blackrock-a-shareholding-giant-is-quietly-stirring.html?partner=rss&emc=rss