Back in the 1970s and 1980s, “activist investors” were also called corporate raiders. Essentially, these large investors would buy up a company, strip it for parts and sell off the assets. Today, activist investors take on a new, less destructive way to achieve superior returns and hold management accountable. Carl Icahn, an activist investor, is now a household name for his outstanding track record, from Dow Chemical to Apple, by getting management to focus on shareholder value and making operations efficient. Bill Ackman and Daniel Loeb are two other very successful activist investors who have achieved very impressive returns compared to peers over the past several years. Now, it appears the “activist strategy” is being adopted by two of the largest asset managers in the world: Vanguard and BlackRock.
BlackRock and Vanguard step up voting assertiveness on companies its index funds hold
According to Kirsten Grind and Joann S. Lublin of the Wall Street Journal, Vanguard has been sending out letters to several hundred companies over the past couple of days, detailing that Vanguard “won’t sit idly by on corporate-governance issues”. Turning to BlackRock, the asset manager has made note that it will oppose re-electing board members that have overly long tenures as board members, lack of diversity on the board, spotty attendance by board members, changing corporate by-laws that negatively affect shareholders, etc.
With Vanguard’s $3 trillion in assets under management and BlackRock’s $4.65 trillion assets under management, these two giants are a major part of global markets and that is why it is imperative for them to set a precedent and use their shareholder rights to the fullest.
Asset managers continue to probe boards that lack shareholder-friendly qualities
State Street Corp, another huge index fund player in the asset management space, has also recently adopted the idea of holding board members responsible for similar issues. For instance, State Street does not like board members staying on for more than nine years because of the idea that “veteran board members often can’t keep up with rapid business changes”. Additionally, from May 2013 to November 2013, 26 companies in the US adopted bylaws that would prohibit bonuses being paid out to board members appointed by activist investors. BlackRock opposed reelection of 8% of directors during 2013 and 7% of directors in 2014.
Overall, it is good that Vanguard and BlackRock will continue to press corporate governance standards and place their large influence on groups that choose to not take shareholder value seriously. Their involvement will hopefully spark a new era of activist standards on corporate boards for years to come.