Beware the guide for investors to avoid firms that put politics over looking after your money

opinion

To Justin Danhoff

May 26, 2023 | 7:40 PM

Investors thought they had reason to celebrate. The new report scores Wall Street companies on whether they put politics ahead of their customers’ financial interests, and many received passing marks.

BlackRock, the world’s largest asset manager, received a well-deserved “C” score. Investment giant Vanguard got a perfect ‘A’.

But the reason the news seems too good to be true is because it is.

The study sheds light on the crucial question of whether Americans’ retirement accounts, pension funds, and other investments are being hijacked for political purposes, but to show what’s really going on. lacks the detailed analysis required for

The Unleashing Prosperity Commission examined how Wall Street companies voted last year for the 50 most extreme environmental, social and governance (ESG) proposals across American corporations.

These proposals were chosen because they have nothing to do with increasing the company’s bottom line.

For example, in one case, he directed Chevron to conduct a race equality audit because Chevron allegedly funded the Richmond Police Department and thereby complicited police brutality.

Another told Mr. Chubb to stop selling insurance to fossil fuel companies.

Researchers then examined how asset managers voted and scored accordingly.

The report got a lot right, with dozens of companies including Charles Schwab and State Street earning a ‘D’, ‘F’ or ‘F-‘ score. They certainly deserved it. more.

As the authors also point out, not voting in the financial interests of customers is not only wrong, it is often illegal. This is because asset management companies have a so-called “fiduciary duty” to put the customer first.

Investors can sue if the asset manager votes for political will instead.

However, the study falls short in other areas.

The researchers considered only the 50 most extreme proposals and ignored the rest.

For example, BlackRock votes on executive pay for hundreds of companies, often seeking to tie CEO pay to achieving BlackRock’s ESG goals.

Vanguard has voted in favor of cutting emissions from Jack in the Box’s Plastic Reduction Report, American Express’s Racial Equality Audit, ConocoPhillips, Phillips 66, Rio Tinto, and others.

The study also found that the votes that asset managers cast to elect (or remove) corporate boards of directors, even though directors have far more influence than a single shareholder proposal. being ignored.

To that extent, BlackRock and Vanguard regularly elect leaders who put social issues ahead of shareholder value, such as Salesforce’s Marc Benioff and the ousted Disney CEO Bob Chapek. ing.

BlackRock isn’t shy about its motives, either. In 2022, he boasted, he has voted out 936 board members for lack of diversity and dismissed another 176 over climate-related concerns.

The study also doesn’t take into account what goes on behind the scenes.

Vanguard, for example, voted against Cigna’s gender pay gap proposal, after receiving assurances that Cigna had hired outside counsel to review its policies to “address underlying concerns.” there were.

Similarly, BlackRock voted against Chevron’s proposal to cut emissions, but only because Chevron had already agreed to cut its carbon footprint.

These asset managers do not put the customer first. They are using the threat of an upcoming ESG vote to extract smaller, albeit still problematic, ESG concessions.

Praising these votes is like praising an armed robbery that didn’t pull the trigger.

Perhaps the most fundamental thing is that rankings are failing by themselves.

According to the study, an “A” grade means that the asset manager “voted in the interest of its clients at least 90% of the time.”

But the law does not require asset managers to vote as trustees 90% of the time.need to do 100% at the time.

Think about it this way. On the 10th he will fire the employee who has stolen only once. Asset managers who have stolen customer votes with the same frequency, or just once, deserve the same fate.

Giving these managers an “A” is misleading to investors, many of whom have already lost faith in the system that misused their investment funds.

There is no doubt that the Commission does important work. And it’s easy to see why the curve has a slope.

A report card where everyone fails is meaningless and unlikely to encourage change.

Give good marks to asset managers who voted with at least the interests of their clients in mind many hopefully they will be motivated to do so all Especially now that I know the committee is in control of the score.

But until then, investors should hold onto their champagne.

Justin Danhof is Strive’s Executive Vice President and Head of Corporate Governance.