Understanding the Big Three’s Wavering Support of Environmental and Social Shareholder Proposals

Understanding the Big Three’s Wavering Support of Environmental and Social Shareholder Proposals Jeff Schwartz* and Jefferson Jensen** ABSTRACT Because of their substantial equity portfolios, BlackRock, Vanguard, and State Street (the Big 3) are central players in corporate governance. It is, therefore, critical to understand how they vote. One puzzle is that their support for shareholder proposals on environmental and social matters appears to waiver. In 2020, for instance, BlackRock supported 11.1% of environmental proposals at S&P 500 firms. In 2021, it seemingly reversed course, supporting 55.2%. It then flipped again, supporting 32.1% in 2022. Such statistics suggest that the Big 3 are constantly changing their views on these topics. This Article seeks to better understand whether this is the case. Using a hand-collected dataset of the Big 3’s voting records with respect to S&P 500 firms from 2018–2022, we first describe the extent to which Big 3 voting has fluctuated. Second, we show that because the pool of proposals varies from year to year, and the companies targeted for such proposals also vary, summary statistics about Big 3 voting tell us little about whether they are changing their positions from year to year. Finally, to control for variation in the pool of proposals and in the pool of companies, the Article analyzes Big 3 voting only with respect to repeat proposals at the same firms. We find (1) that the Big 3 remained largely, but not wholly, consistent; (2) that when they changed their votes, it was usually to support proposals that they previously opposed; and (3) that, in some cases, changes on repeat proposals provide a meaningful explanation for year-over-year changes in their voting patterns. * Hugh B. Brown Presidential Professor of Law, University of Utah, S.J. Quinney College of Law. ** Associate, Miller Harrison, Juris Doctor, University of Utah, S.J. Quinney College of Law. The authors would like to thank the Seattle University Law Review for hosting the Berle XVI symposium and the symposium participants for their valuable comments. 481 482 Seattle University Law Review [Vol. 48:481 CONTENTS INTRODUCTION ......................................................................................482 I. THE SHAREHOLDER PROPOSAL PROCESS ..........................................484 II. THE CONTROVERSY AROUND THE BIG 3’S VOTING PRACTICES ...............................................................................487 III. EMPIRICAL STUDY ...........................................................................492 A. Summary Statistics ........................................................................492 B. Behind the Data—The Proposal Pool ...........................................494 C. Repeat Proposals ..........................................................................496 D. Proposals Repeated in Later, but Not Immediately Subsequent, Years ..............................................................................509 E. Identical Proposals .......................................................................511 F. Implications from Voting on Repeat Proposals ............................514 CONCLUSION..........................................................................................516 APPENDIX 1: ESG CATEGORY CODES ...................................................517 INTRODUCTION Vanguard, State Street, and BlackRock (the Big 3) hold unparalleled power over corporate America.1 One of their key sources of influence relates to the shareholder proposal process. Each year concerned shareholders bring hundreds of proposals for shareholder consideration. Because the Big 3 hold trillions in equity assets and the associated voting power that comes with it,2 they have tremendous influence over whether these proposals win majority support. Increasingly, these proposals bear on 1. See John C. Coates, The Future of Corporate Governance Part I: The Problem of The Twelve 13–14 (Harvard Pub. L. Working Paper, No. 19-07, 2018), http://www.law.harvard.edu/programs/olin_center/papers/pdf/Coates_1001.pdf (BlackRock, Vanguard, and State Street collectively control “a much greater share of U.S. public companies than any three single investors have ever previously done”); Common Ownership: The Investor Protection Challenge of the 21st Century: Hearing on Competition and Consumer Protection Before the Fed. Trade Comm’n (2018) (testimony of Robert J. Jackson, Jr., Comm’r, Sec. & Exch. Comm’n), https://www.sec.gov/news/testimony/jackson-testimony-ftc-120618 (referring to the concentration of power in the biggest asset managers as “unprecedented”). 2. See Jan Fichtner, Eelke M. Heemskerk & Javier Garcia-Bernardo, Hidden Power of the Big Three? Passive Index Funds, Re-Concentration of Corporate Ownership, and New Financial Risk, 19 BUS. & POL. 298, 313 (2017) (finding that the Big 3 are, collectively, the largest shareholder in 88% of S&P 500 companies, and that the remaining firms are typically dominated by founders, family members, or other insiders); Dawn Lim & Justin Baer, BlackRock, Other Investors Target Climate Issues, Covid-19 Response and Board Seats in Shareholder Votes, WALL ST. J. (Aug. 12, 2021), https://www.wsj.com/articles/blackrock-other-investors-wield-growing-board-shareholder-voteclout-11628766001 (reporting that the Big 3 collectively own nearly 20% of equity in S&P 500 companies). 2025] Understanding the Big Three’s Wavering Support 483 environmental and social matters (ES proposals). Such proposals commonly ask the corporate boards of directors, for instance, to produce reports on pay disparities in their workforce and their efforts to reduce their environmental impact. The Big 3’s support for these proposals has been mixed and seemingly inconsistent over time. BlackRock’s voting seems to shift the most. For instance, it supported 11.1% of environmental proposals in 2020, then 55.2% in 2021, and 32.1% in 2022.3 Such statistics suggest that each year the Big 3 are changing their minds on these issues, even that their voting is unmoored and unprincipled. This Article seeks to better understand what is driving the appearance of caprice. Using a hand-collected dataset of the Big 3’s voting records with respect to S&P 500 firms from 2018–2022, we first describe the extent to which the Big 3 have changed their votes each year. Second, we show that because the pool of proposals changes significantly each year, as do the companies targeted, summary statistics tell us little about the stability of the Big 3’s voting preferences. Finally, to control for variability in the pool of proposals and targeted companies, we examine whether the Big 3 changed their votes on identical and substantially similar (repeat) proposals at identical companies in subsequent years. We find that there was a significant number of repeat proposals year-over-year. With respect to those proposals, the Big 3 remained largely—but far from wholly (...truncated)