Implications of corporate owners of ETFs (e.g. Blackrock and Vanguard) advocating activist investing

[jonnyalliance]

Recently, corporate owners of ETFs like Blackrock and Vanguard voted to effect change in Exxon, by voting in board members proposed by a small activist investing firm.

What are the long-term implications of this? Lets assume 50% of the owners of the underlying Blackrock funds owning Exxon actually disagreed with what Blackrock was doing - would this not be unfair? Is this not a form of "tyranny of the majority"? What if I, as an investor in a Blackrock-managed fund, actually want the exposure to a pure-play O&G company?

Have there been other cases where the corporate fund managers have made such a profound change to the Board of a large public listed company?

It is also scary how the Blackrock/Vanguard ownership % in public companies year after year. They own presumably 20-30% of most companies on the S&P500. And this includes competing companies. I believe no individual investor, bar fund managers, are allowed to own large stakes in competing companies.

Thanks!

 

[relicuk]

@jonnyalliance The reason blackrock did this is to market their fund as having some sort of social awareness (without having to claim they are an ESG fund). They did this because they believe that more people would be willing to purchase blackrock funds, not that the underlying companies would benefit financially.

If anyone opposes the actions of blackrock, they should actually vote with their wallet and move management asap.

 

[etenczal]

@relicuk Blackrock has been very open about the fact that they think climate change will negatively affect returns in the future. Given that they own a huge percentage of the market, it is in their best interest to sacrifice a limb to save a life. Blackrock does not give a fuck about Exxon’s profitability, and nor should any of Blackrock’s investors if they agree with Blackrock’s assessment. The fact that they can claim an ESG victory is just marketing.

It’s an interesting development for sure. I don’t think you’ll start seeing activist decisions in large numbers by Blackrock and Vanguard, but this move was definitely sending a signal to the “sin” sectors.

 

[73552]

@etenczal I think it's a good thing that Blackrock has done, but I'll tell anyone that they are extremely naive if they think it was done out of altruism.

Blackrock did it as a flex of their power/influence, boost the attractiveness of their ETFs, attract investor interest, and gain a few publicity points while possibly helping the environment while also protecting future returns. Personally, I don't think climate change was very high on the list of priorities. Nor the need to mitigate of climate change to protect their future profits if it hit everyone just as hard. I think the main reason was the flex showing that they are powerful and so investors will side with them.

I might own an etf with Ishares? Which is owned by Blackrock? But I LITERALLY own BLK shares myself. I didn't buy those shares because I though BLK more ESG than the next guy. In fact, I bought in knowing they are scummy ass bankers, but specifically picking BLK precisely they are like the Goldman of asset whales (Fidelity, Statestreet, Vanguard). I bought during the 1st [video game retailed that can't be mentioned] pump when the entire market dropped. IMO it made no sense at all that BLK rock which owned 14% of GME at the time should go down when GME itself goes up to $400 a pop. My bought BLK precisely because I knew GoldmanRock had the sharpest, scummiest, and sharkiest sharks of the whales and will definitely exploit the situation. Paid off well. Wish I bought more.

 

[henrybryce]

@relicuk Exxon has been in lawsuits for literally enslaving indigenous populations. Doing the right thing is not ever going to be for the financial benefit of the underlying company. But it still has to be done, and if you're against that, well you're just frankly a terrible human being.

The shareholder population is shifting massively to the latest generations and more and more these people want the companies they own to act ethically and not just squeeze the most possible dollars out of everything. I own shares. If I want to enjoy the economic benefits of owning these shares 30 years later, I want the companies I own to not destroy the environment so i retire rich (ha, as if) but in a flaming hellhole. Also giving breastfeeding mothers free formula until they stop producing milk, then charging insane prices for formula, while buying up all their water for cents and reselling it back to them is just plain not cool, and I'll agree to smaller dividends if that shit doesn't happen.

 

[davidasj7]

@jonnyalliance If you want to own a pure-play O&G company, buy that directly?

If you want to own a company that you can guarantee will continue to be what you want it to be, buy enough of it to be a majority shareholder. Otherwise, the other shareholders might still outvote you.

You don't buy the sort of funds that Blackrock manages if your objective is "pump the black stuff out of the ground," you buy them if your objective is "make money." For those people, Exxon was headed in the wrong direction. It's been stagnating at best, more realistically declining, even in comparison with other O&G companies, and even without taking into account 2020's plague-depressed O&G performance.

A small activist investing firm may have proposed the changes, but the changes happened because enough votes agreed that something had to change. Buy $50M of GOOGL and propose abandoning advertising to go back to pure-play search and see who votes with you.

 

[kit721]

@jonnyalliance Yea. I was so pissed when T got into the cellular phone business when I just wanted a pure landline play

 

[resjudicata]

@jonnyalliance Blackrock wants to make money. Exxon can buy back their stock if they don't want other owners telling them how to increase profits.

You are also free to buy Exxon or other stocks through other means if you are unhappy with Vanguard.

 

[henrybryce]

@resjudicata

Exxon can

Who's Exxon? Exxon IS the shareholders. Though indirectly, it's shareholders who approve or disapprove share buybacks. There is no Fred Exxon who lost control over his baby to these bloodsucking environmentalist hippies who bought all his shares against his will. Besides buybacks are a nearsighted narrow vision exteremely short term patch that's mostly use to just fudge the per share metrics and justify egregious CEO bonuses. Any such extra money should be channeled into growth of the company and improving things.

 

[wdub]

@henrybryce Oil and gas companies v bloodsuckers

Corporate needs you to find the difference between the two pictures (there is none).

 

[criticalthinker1]

@jonnyalliance It is worrying. While it is certainly the case that there are externalities that governments should be taking a stance on: climate change, social welfare, governance, etc.

I'm not convinced it is the role of index fund managers to take a stance using the shares of a heterogenous shareholder base. I.e. voting 100% of their shares in favor of an activist when their shareholder base is certainly more fragmented. In this case, it's easy for proponents of climate change to view this as a victory- but if the same power was used against a cause you cared about, would you still feel the same? Should the index funds force in board directors at Apple who oppose using Uighurs for cheap factory labor, even though it would reduce marginal economics and cash flow for Apple?

Who decides what is important enough for the index funds to exert their influence on, where is their accountability? Government officials and policy makers are voted in, but the flow of capital to these indexes isn't as clearly linked to a mandate for political stances that shareholders want to emphasize.

 

[olleg12]

@jonnyalliance If you don’t like it then sell your shares and move your money elsewhere. Majority rules.

 

[angelgrleyes]

@jonnyalliance Blackrock is upfront on environmental issues; Vanguard disclosed nothing. Although I have owned Vanguard funds for decades, and recommended friends, family and clients invest in Vanguard, I'm done with them. Selling, and will never recommend Vanguard again.

 

[dd73]

@jonnyalliance Look into who Engine 1 actually put on Exxon’s board. The move was about putting in outsiders that have proven track records of success in industry as much as it was about any kind of transition to renewables. Greg Goff is probably the most important nominee to the board. The dude is purely focused on returning value to shareholders and he has a history of doing so at the other places he’s been. I honestly think the renewables angle that was publicized was a marketing gimmick to garner support for the activists as much as anything.

 

[lamnhi]

@dd73 This is a very good point. The proxy fight was about BOTH Exxon's bad environmental record and its bad capital allocation record.

I'm curious if there will similar efforts at better run O&G companies and how the big index giants will respond. I suspect corporate governance will be the main way for BlackRock, Vanguard, State Street, Fidleity et al to differentiate their index funds as the expense ratios approach zero.

 

[callielovesjesus]

@jonnyalliance Just wait until the mother of all squeezes happen and black rock and vanguard scoop up over 50% of almost all companies lmao.

 

[mombright]

@jonnyalliance It is more of a PR than actually investing companies that helps climate.

I wish I am wrong and market could just optimize for very long term but only option is for governments to work together and enforce certain regulations at this point imo.