The voting of fund managers is infected by conflicts of interest, said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. That is because these giant mutual fund operators don’t just own shares in many big American companies; they also do business with them.
“Funds often avoid challenging management on executive pay and corporate governance because they want to be included in corporate defined-contribution benefit plans,” he said in an email. “If a fund irritates a C.E.O. and the C.E.O.’s pals on the board, the fund risks losing business at several companies.”
BlackRock and Vanguard dispute this notion, saying they put their customers’ interests first in their voting. “We weigh all factors that could affect the long-term value of our clients’ assets,” Ed Sweeney, a spokesman for BlackRock, said in a statement, “including the hundreds of public pension plans, nonprofits, foundations, endowments, educational institutions and individual investors we serve.”
…On matters involving executive pay, in the most recent 12 months, [Black Rock and Vanguard] overwhelmingly supported compensation practices at the companies in the Standard & Poor’s 500-stock index. BlackRock supported executive pay at 98.3 percent of those companies in the most recent year, and Vanguard voted in favor of pay practices in 98.1 percent of its votes. (Vanguard disputed this, saying it voted yes a mere 96 percent of the time.)
By the way, both companies supported the pay practices at Wells Fargo, whose executives are under fire for overseeing a pervasive program that prompted many employees to set up sham accounts to generate fees and make quotas.
As head of BlackRock’s investment stewardship unit, Michelle Edkins oversees its voting. On executive compensation, she stressed that the firm voted against pay practices or compensation committee members at 10 of the 50 companies with the highest-paid chief executives this year. She also said that BlackRock discussed compensation matters with half of those companies.
Beyond pay, BlackRock and Vanguard both supported management by voting against most proposals requiring that a company’s board be led by an independent chairman. Shareholders in favor of this idea contend that such a move would reduce management’s grip on the board and bring more accountability to corporations.
BlackRock voted nay on 95 percent of such proposals, Proxy Insight found, while Vanguard rejected 100 percent of them.