BlackRock’s Fink learns to live with activist investors

By Svea Herbst-Bayliss and Ross Kerber

NEW YORK (Reuters) – Larry Fink, whose $6 trillion BlackRock Inc (NYSE:) seldom picks a public fight with large companies, said on Monday that activist investors often help lay the groundwork for positive change in the corporate world.

“The role of activists is getting larger, not smaller,” Fink said at the Reuters Global Investment 2018 Outlook Summit in New York, “in many cases their role is a good one.”

BlackRock is one of the world’s largest so-called passive investors, which runs portfolios that largely mirror stock market indexes and sticks with the companies that are included in those indexes.

Joking that BlackRock owns some of the world’s best and worst companies, Fink said the interaction between management and so-called activists who push top executives to perform better is often very productive for investors like his funds.

Years ago, Fink made headlines by warning corporate chiefs that they should not be so quick to give in to corporate nudges’ demands.

Activist investors, which often include big-name hedge fund managers such as Nelson Peltz, Carl Icahn and William Ackman, have repeatedly asked corporate management to buy back more stock and raise their dividends, something Fink said could push up share prices in the short term but be less helpful in the long term.

He said he is still worried about the short-term investment strategies and noted that activists often play those well. But he also gave them credit for setting the path for longer-term improvements.

Even as Ackman’s Pershing Square (NYSE:) Capital Management last week lost a bruising proxy battle with Automatic Data Processing, Fink said that the campaigns will bear fruit.

At ADP, for example, Ackman pushed for management to become more efficient, deliver more robust earnings and consolidate its real estate footprint. “They may have lost but they are forcing change,” Fink said of activists, without discussing any specific proxy contest.

BlackRock, whose votes are often instrumental to a proxy contest’s outcome, is now talking more openly about how it reaches its decisions on which way to vote.

In May, BlackRock helped pass a shareholder resolution calling on Exxon Mobil Corp (NYSE:) to provide more information about how new technologies and climate change regulations could impact the business of the world’s largest publicly traded oil company.

Fink said the firm is only voting in the long-term interests of its investors, and that its responsibilities are growing as more money moves into its index funds and ETFs. The new detail around its proxy votes is what investors now expect, he said. “The market is demanding it, I mean I would prefer never talking about it,” Fink said of the new explanations.

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