Institutional Investor Engagement: Public Engagement’s Impact
Each year, we blog about Larry Fink’s annual letter to CEOs. With BlackRock being among the largest shareholders for many companies, the letters are read with interest to help understand BlackRock’s key focus areas for the upcoming shareholder meeting season. A recent academic study examined whether “broad-based public engagement”, such as Larry Fink’s annual letter, is effective at influencing company behavior and it found that it is.
The study examined several questions, including among others, whether companies adjust disclosures following the release of Larry Fink’s annual letter and if so, whether BlackRock values the disclosures. For each of these questions, the researchers said yes, companies adjust their disclosures and BlackRock values them.
The researchers studied disclosures from 2016 – 2019 of 3,550 companies and observed a change in portfolio firms’ 8-K disclosures around the letter release date, suggesting that companies are responding to Fink’s call for more disclosure about topics of interest. Specifically, we find that portfolio firms’ disclosures during the post-letter period reflect an increase in language similar to that included in the letter, controlling for a variety of firm and disclosure characteristics. Moreover, our results indicate that the observed change in disclosure around the BlackRock letters is a response to BlackRock’s broad-based public engagement letters, rather than to a general demand for information from other important stakeholders (e.g., Vanguard and State Street) or to BlackRock’s private engagement.
Further, BlackRock appears to value these additional disclosures, as evidenced by less opposition to management recommendations in votes during subsequent annual shareholder meetings. This result extended to the subset of proposals related to environmental and social issues.
An Institutional Investor article discusses the research and in it the authors appear to advocate for investor public engagement. Hard to say whether we’ll see more of this from other investors but the authors say their research suggests public engagement is an effective way for investors to communicate broadly with portfolio companies beyond more costly individual interactions.
-Lynn Jokela, TheCorporateCounsel.net March 1, 2021
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