James McRitchie, 9295 Yorkship Court, Elk Grove, CA 95758, the holder of 25 shares of common stock, has advised us that he intends to introduce the following resolution:
Resolved, BlackRock, Inc. (“BlackRock” or “Company”) shareholders request that our board take each step necessary so that each voting requirement in our charter and bylaws that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws. This means the closest standard to a majority of the votes cast for and against such proposals consistent with applicable laws. It is also important that our company take each step necessary to avoid a failed vote on this proposal topic.
Shareowners are willing to pay a premium for shares of companies that have excellent corporate governance. Supermajority voting requirements have been found to be one of the six entrenching mechanisms that are negatively related to company performance according to “What Matters in Corporate Governance” by Lucien Bebchuk, Alma Cohen and Allen Ferrell of the Harvard Law School (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=593423).
Large funds, such as BlackRock, SSgA and Northern Trust generally support the elimination of supermajority requirements, since most view them as an entrenchment device for management. BlackRock’s Proxy Voting Guidelines for U.S. Securities (http://www/blackrock.com/corporate /literature/fact-sheet/blk-responsible-investment-guidelines-us.pdf) reads as follows:
We generally favor a simple majority voting requirement to pass proposals. Therefore, we will support the reduction or the elimination of supermajority voting requirements to the extent that we determine shareholders’ ability to protect their economic interest is improved. Nonetheless, in situations where there is a substantial or dominant shareholder, supermajority voting may be protective of public shareholder interests and we may support supermajority requirements in those situations.
This proposal topic won from 59.2% to 90.1% of the vote at Kaman, DuPont, Salesforce.com and Ryder System in early 2018. Prior to that it won 74% to 99% support at Weyerhaeuser, Alcoa, Waste Management, Goldman Sachs, FirstEnergy, McGraw-Hill, Macy’s, Ferro Arconic, and Cognizant Technology Solutions.
Currently a 1% special interest minority of shares can frustrate the will of shareholders casting 79% of shares in favor. In other words a 1% special interest minority could have the power to prevent shareholders from improving our cooperate governance.
Please vote again to enhance shareholder value: Simple Majority Vote – Proposal 5
The Board of Directors’ Statement in Opposition
The Board of Directors has carefully considered the proposal and believes that the three existing supermajority provisions in the Company’s Amended and Restated Certificate of Incorporation (the “Charter”) are protective of stockholders and appropriate given the significant ownership stake of The PNC Financial Services Group, Inc. (“PNC”) in BlackRock.
BlackRock’s Bylaws and Charter apply a majority voting standard consistent with Delaware law to almost all corporate matters to be voted on by our stockholders. Article Thirteen of our Charter includes three limited circumstances where a supermajority standard is required:
1. A supermajority vote of the holders of 75% of the stock entitled to vote is needed to alter, amend or repeal, or adopt a provision inconsistent with, the Charter provision in Article Thirteen stating that the Charter may be amended with approval by BlackRock’s Board and at least a majority of the stock entitled to vote. In other words, this supermajority provision benefits stockholders by protecting the majority voting standard generally applicable for amending the Company’s Charter.
2. A supermajority vote of the holders of 80% of the stock entitled to vote is needed to amend the Charter provision in Article Twelve requiring that the Company’s Bylaws may be altered or repealed only by the affirmative vote of at least a majority of (x) the members of the Board or (y) the stock entitled to vote. In other words, this supermajority threshold benefits stockholders by protecting the majority voting standard for amending the Company’s Bylaws.
3. Finally, a supermajority vote of the holders of 80% of the stock entitled to vote is required to amend Article Nine of the Charter, which regulates and defines the conduct of certain business and affairs between BlackRock and any “Significant Stockholder” of the Company (generally defined as a person who beneficially owns greater than 20% of the issued and outstanding voting stock of the Company). Currently, PNC qualifies as a Significant Stockholder in light of its approximately 21% ownership of the Company’s voting stock. Article Nine is important as a legal matter in that it establishes certain norms for the course of conduct between the Company and a Significant Stockholder in areas such as ordinary course business relationships and corporate opportunities. In sum, this supermajority provision protects the interests of our public stockholders (as well as Significant Stockholders) by requiring that any amendments to Article Nine receive broader stockholder support than the majority required for other Charter amendments, thereby preserving clarity in the relationships between BlackRock and any of its Significant Stockholders.
BlackRock shares a number of the proponent’s concerns regarding the inclusion of supermajority provisions in charters and bylaws designed to entrench management. However, supermajority provisions can serve a legitimate purpose and receive investor support when the ownership structure includes a significant stockholder, as is the case here. For example, BlackRock’s Investment Stewardship team typically favors a simple majority voting requirement but may support supermajority provisions that serve to protect public stockholder interests where there is a substantial stockholder. We also note that for the past five years, votes cast at BlackRock’s annual stockholder meeting have exceeded 88% of the outstanding stock of the Company, signifying that the supermajority voting thresholds in the Charter are achievable votes where stockholder support for an action is widespread.
We believe that the supermajority provisions in BlackRock’s Charter do not serve to entrench management, are protective of the majority voting standards of our Charter and Bylaws and are appropriate in light of PNC’s status as a Significant Stockholder.