Count the article in the url below as another strike against the idea of shareholder democracy here in the U.S. Specifically, the article discusses an interesting practice that I was unaware of – share lending:
"[Investment firms, such as BlackRock, Vanguard, and Fidelity, who commonly hold a large percentage of a listed firm's shares] loan shares through brokers and intermediaries who act for clients unknown to the original lenders. Short sellers often borrow those shares to bet against companies, paying fees to funds that supply them with those shares. Those fees get passed back to fund investors."
While this is a good source of income for the funds (particularly in times of low yield, such as these), the result is that the funds are not able to use the votes associated with the loaned shares at the focal firm's annual general meeting:
"Investors from hedge funds to pensions make these tradeoffs all the time. For the biggest asset managers, the decision can occur on a massive scale as these firms direct trillions of dollars for investors."
This is particularly interesting choice for funds such as BlackRock, that have made so much noise about forcing executive teams to respond more directly to the firm's broad set of stakeholders:
"While investing giants have raised their voices to prod companies to address society's most pressing problems, they sometimes decide not to control the ballots that drive change. Their choice to loan out shares in some of the heavily shorted companies breaks with many people's assumption that firms overseeing economic interests in companies will cast full votes to maximize the value of the shareholdings."
The funds are clearly focused on the fees associated with this lending practice, while the result can be influential in determining the outcome of shareholder ballots:
"Many managers typically don't retrieve shares that have been lent out unless they think their vote is worth giving up income from lending out shares. The shares they put on loan are conduits for short selling. [For example,] In the last two weeks of April, GameStop has roughly 90% of shares outstanding sold short."
Take care
David
David Chandler
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Investing Giants Cede Full Vote Power
By Dawn Lin
June 11, 2020
The Wall Street Journal
Late Edition – Final
B1, B10
also in full, here:
