the publication of its 2020 voting policy updates, BlackRock, Inc. published
its 2020 Engagement Priorities. This
year, the investor is focused on:
- Board Quality
- Environmental Risks and Opportunities
- Corporate Strategy and Capital Allocation
- Human Capital Management
- Compensation that Promotes Long-Termism
BlackRock, with assets under management in the trillions, will also be changing how frequently it communicates its investment stewardship activities from annual to quarterly reporting. It will now provide more prompt disclosure around key votes, including an explanation of voting decisions, and enhanced disclosure of company engagements. The firm will also be mapping its engagement priorities to the United Nations Sustainable Development Goals (UN SDGs) and providing KPIs (Key Performance Indicator) for each priority.
BlackRock will continue to review how boards are assessing effectiveness and director performance, specifically the board's position on director responsibilities and commitments, turnover, succession planning and diversity. As stated in its engagement priorities report, BlackRock recognizes that diverse boards make better decisions and may vote against directors on the nominating and/or governance committees if there is a lack of diversity on the board. BlackRock will continue to evaluate a board's effectiveness and role in crisis management. BlackRock seeks to understand how boards handle such crisis management issues as cyber events, sudden departures of senior executives, negative media coverage, or a proxy contest, given that these events have the possibility of taking attention away from other board responsibilities.
Environmental Risks and Opportunities
To facilitate robust disclosure it considers is essential for investors to effectively gauge companies' preparedness for environmental risks and opportunities, BlackRock is asking that companies, by the end of 2020, issue reports aligned with the recommendations of the Sustainability Accounting Standards Board (SASB), and the Taskforce on Climate-related Financial Disclosures (TCFD). Read more about Larry Fink’s 2020 Letter to CEOs: A Fundamental Reshaping of Finance
Corporate Strategy and Capital Allocation
BlackRock states that a company's corporate strategy disclosure should clearly describe what it does every day to create value for shareholders. This disclosure should include the long-term strategic goals that the board and management are working towards, the applicable measures of value creation, the milestones that demonstrate progress, and the steps taken in response to challenges. Companies should regularly update this disclosure; it should reflect how a company prioritizes its capital allocation, including capital investments, research and development, technological adaptation, employee development and capital return to shareholders, i.e. dividend, buy-back, or other return opportunity.
Compensation that Promotes Long-Termism
In seeking to understand how executives are being paid, BlackRock expects companies to tie executive pay to long-term returns as opposed to short-term increases in stock price. In addition, the firm may look to speak directly with directors if the company does not provide detailed justification for compensation that is not tied to company performance. Incentive plan metrics that are used to trigger payments should be justified within the context of the company sector and business model. BlackRock will want to understand the balance between the "input metrics" that are within management's control relative to "output metrics" such as earnings per share.
Human Capital Management
BlackRock will be looking for companies to disclose qualitatively, and quantitatively, its strategy surrounding human capital management and may hold specific board members accountable in the absence of such disclosure. Both qualitative and quantitative disclosures help provide an understanding as to how a company is considering HCM as a business risk, how it values employees as a long term asset and how a company deals with long-term risk management. Additionally, disclosure helps provide a sense of the quality of the board's oversight and the company's culture. The firm expects these disclosures to provide an understanding of how boards work with management to improve performance in areas such as employee development, compensation and inclusion and diversity.
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