Sustainable Finance Newsletter - Experts see little traction for AGs' BlackRock scrub

Unum

13/03/2024 16:00

By Ross Kerber
       March 13 (Reuters) - Some of the most obscure bodies in
U.S. finance are the boards that oversee mutual funds. While the
massive accumulation of money into low-cost index funds run by
BlackRock, Vanguard and others has given these asset managers
outsized influence, the boards that oversee their funds rarely
receive public attention. 
           
Lately U.S. Republican politicians have zeroed in on how some
BlackRock  BLK.N  fund directors also serve as directors of
companies held in BlackRock fund portfolios, a situation they
say raises independence concerns. In this week's main story
below you can read what several corporate-governance experts had
to say about the matter. (Spoiler: Lots of cold water is
poured).
        
You'll also find links to stories about the climate disclosures
that U.S. companies must make under a new rule regulators
approved March 6, and a pay clawback from the former CEO of
BP. BP.L  
        
Please connect with me on LinkedIn. If you have a news tip,
potential content, or general thoughts you can also email me at
ross.kerber@thomsonreuters.com

This week's most-read 
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dilution
  
        
Corporate governance experts see little traction for AGs'
BlackRock scrub
Republican U.S. state attorneys general concerned about the
independence of BlackRock  BLK.N  fund directors might score
political points, but they are raising some long-settled fund
management issues, corporate governance experts said.
    
A Feb. 27 letter from a group of attorneys general led by
Montana's Austin Knudsen to BlackRock independent fund trustees 
is part of a broader effort by Republican politicians against
corporate policies concerning environmental, social and
governance (ESG) factors. The letter, seen by Reuters,
reiterated criticisms from July about whether BlackRock fund
directors are fully independent and sought more details about
areas like fund director oversight.
    
Among other things, the letter references BlackRock fund
directors who also are directors of companies where many shares
are held by BlackRock funds. These include Cynthia Egan, a
director of insurer Unum  UNM.N  and Glenn Hubbard, chair of
another insurer, MetLife  MET.N . 
    
The attorneys general wrote that "it would require a suspension
of disbelief to think that Ms. Egan and Mr. Hubbard do not
understand that upsetting BlackRock in their role as independent
directors for the BlackRock mutual funds could endanger their
positions as directors of public companies," since BlackRock
funds could vote them off those corporate boards.
    
Several corporate governance experts said the BlackRock fund
directors' dual roles are allowed under laws like the 1940
Investment Company Act, however.

Yale Law School professor John Morley said it is routine for
large investors to be represented at portfolio companies. He  
pointed to the effort of investor Nelson Peltz to win board
seats at Disney. DIS.N  "People do this all the time," Morley
said.
    
Nell Minow, vice chair of corporate governance consultancy
ValueEdge Advisors, said mutual funds are so heavily regulated
that fund directors mostly make sure executives follow the
rules, diminishing conflict concerns. Fund directors "are
essentially compliance overseers," Minow said.
    
Columbia University law professor Dorothy Lund said similar
arguments about directors' independence have gone nowhere in
Delaware courts. The conflict the attorneys general describe "is
so indirect," she said.

Hubbard and Egan did not respond to questions. In a statement
BlackRock said its funds' independent trustees will review and
respond to the Feb. 27 letter. "BlackRock and its funds’ Boards
of Trustees act in full accordance with their fiduciary
obligations and in the best interests of all fund shareholders,"
said the statement sent by a representative.
    
Knudsen's group had raised similar issues over the summer. In an
Aug. 7 response seen by Reuters, an attorney for BlackRock
independent fund directors wrote that service on the portfolio
companies' boards "helps provide an independent director with
exposure to current governance issues and business practices." 
    
The fund directors' attorney also cited regulatory guidance and 
wrote that taking a narrower view of who could serve "would
substantially diminish the number of high-quality candidates
that could serve on fund boards."

Told of the response from corporate governance experts, a
representative for Knudsen said the Feb. 27 letter was meant to
learn more about topics like what BlackRock told its fund
directors, and how it manages potential conflicts of interest.
    
"Given BlackRock’s size and influence, it strains credulity to
believe that a board member can truly be independent to push
back against ESG goals" prioritized by BlackRock CEO Larry Fink
when that person also serves on a portfolio company's board, the
representative said.
            
Company News
BP  BP.L  clawed back 1.8 million pounds ($2.3 million) from
former CEO Bernard Looney's 2023 pay package following his
dismissal on Dec. 13 for failing to disclose past relationships
with employees, the company said.
    
U.S. carriers, including United Airlines  UAL.O  and Southwest
Airlines,  LUV.N  warned of jet delivery delays from Boeing as
the hit to the airline industry from the planemaker's safety
crisis worsens.
    
Tyson Foods  TSN.N  will permanently close a pork plant in
Perry, Iowa, and eliminate about 1,200 jobs, the latest in a
series of facilities closures it has announced amid slowing
demand.
    
On my radar 
Since 2016 there has been a twelve-fold increase in the number
of companies reporting on their gender or racial pay gaps,
Arjuna Capital found in its latest scorecard on the subject
issued this week. Arjuna's report gave Target  TGT.N  and
Starbucks  SBUX.O  perfect scores based on disclosures and
"strong pay equity performance."
    
The U.S. House Financial Services Committee plans a hearing in
Tennessee on March 18 on what it calls the "regulatory
overreach" of the Securities and Exchange Commission's new
climate disclosure rule, part of Republicans' continued efforts
to block the new requirements. 
 

 (Reporting by Ross Kerber. Editing by Aurora Ellis.)
 ((ross.kerber@thomsonreuters.com; (617) 412 0093;))