BlackRock, Fidelity, CalSTRS Update Proxy Voting Guidelines for 2024

As the 2024 proxy season gets underway, various institutional investors are releasing updates to their U.S. proxy voting guidelines. In early January, BlackRock, Fidelity Investments and the California State Teachers’ Retirement System (CalSTRS) publicized their changes, as described below.

Notably, both BlackRock and Fidelity highlighted their antipathy towards shareholder proposals that are unduly prescriptive or constraining on management. BlackRock also tempered its policies regarding the consideration of key stakeholder interests; steps undertaken to advance diversity, equity and inclusion (DEI); and plans to transition to global net-zero emissions. In view of the restrained nature of these updates — along with the absence of any material changes by Institutional Shareholder Services (ISS) — environmental and social (E&S) resolutions are unlikely to see any improvement in average support this season after two consecutive years of decline.

BlackRock

BlackRock made few significant changes to its 2024 voting policies. For the most part, it is showing issuers more flexibility regarding human capital management (HCM) practices, stakeholder interests, and climate transition plans, while providing a more detailed discussion on how it evaluates shareholder proposals.

• Board term limits and director tenure: BlackRock would like clear disclosure of any corporate governance guidelines a board has adopted regarding the rotation of board committee leadership and/or membership.
• CEO and management succession planning: Where there is a significant concern regarding the board’s succession planning efforts, BlackRock will now vote against the members of the responsible committee or the most relevant director.
• Shareholder proposals: BlackRock has added a new section clarifying its overall approach to shareholder proposals as follows:
  • BlackRock evaluates each proposal on its merit with a singular focus on long-term financial value creation. It takes into consideration the business and economic relevance of the issue raised as well as its materiality and urgency. It will not support proposals that are over-reaching into the basic business decisions of the company.
  • BlackRock may support shareholder proposals that are focused on a material business risk that impacts long-term value, as long as the request is reasonable and not unduly prescriptive or constraining on management. It may also vote against the election of directors if the board has not responded sufficiently to a material risk or with appropriate urgency. Even if management is on track in addressing the risk, BlackRock may back the shareholder proposal if doing so will accelerate management’s efforts.
  • BlackRock’s support of a proposal does not mean that it endorses every element of the proponent’s reasoning, objectives or supporting statement.
  • BlackRock finds it helpful for companies to disclose the name of the proponent.

• Material sustainability-related risks and opportunities: BlackRock has updated its policy on the disclosure of material sustainability-related risks and opportunities to advocate using the International Sustainability Standards Board (ISSB) standards, IFRS S1 and S2. This is due to the convergence of the Task Force on Climate-related Financial Disclosures (TCFD) framework and the standards and metrics developed by the Sustainability Accounting Standards Board (SASB) under the ISSB.
• Climate risk: BlackRock has altered the language in its climate risk policy whereby it encourages companies to disclose a business plan for delivering long-term performance through a transition to a low-carbon economy. BlackRock’s previous standard was a plan to transition to global net- zero carbon emissions.
• Key stakeholder interests: BlackRock has clarified that it is up to each company to determine its key stakeholders. It finds it helpful for companies to disclose how they identified such stakeholders and considered their interests in their business decision-making. BlackRock has deleted its policy of voting against relevant directors or supporting shareholder proposals if it feels the company is not appropriately considering its key stakeholder interests in a way that poses material financial risk to the company and its shareholders.
• HCM: BlackRock has toned down its HCM policy which previously asked companies to disclose the steps they were taking to advance DEI. It now wants companies to simply disclose their approach to DEI, along with workforce demographics which are baselined in their EEO-1 Survey responses. It also asks companies to disclose and provide context on the most relevant HCM factors for their business. BlackRock has deleted its policy of voting against members of the appropriate committee or supporting relevant shareholder proposals if a company’s HCM practices or disclosures fall short of those of its peers or the market, or if BlackRock is unable to determine the effectiveness of board and management oversight of HCM risks and opportunities.

Fidelity

Fidelity made no substantive revisions to its voting guidelines for 2024.2 Its only modifications– (highlighted in italics below) were some rewordings to its policies on board diversity and natural and human capital proposals.

• Board diversity: Fidelity replaced “female” directors with “gender diverse” directors in its board diversity policy. It will oppose the reelection of certain or all directors if there is no gender diversity on the board, or if a board of 10 or more members has fewer than two gender diverse directors.
• Natural and human capital: Fidelity underscored its objection to unduly prescriptive shareholder resolutions. Fidelity will generally oppose resolutions on natural and human capital unless they address a topic that is financially material, provide disclosure of new or additional information without being overly prescriptive, provide valuable information to the business or investors, and are realistic or practical for the company to comply with.

CalSTRS

CalSTRS made several substantive amendments to its corporate governance principles relating to sustainability reporting, boards of directors, human capital management (HCM) reporting, and environmental, social and governance (ESG) risks and opportunities:³

Supporting Standardized Sustainability Reporting: CalSTRS endorses the ISSB standards as a baseline for sustainability-related disclosures.⁴

Board Composition

• Director qualifications: CalSTRS favors a director skills and diversity matrix as the preferred format for disclosing the skills, experience, and demographic of each board member.
• Director independence: CalSTRS has expanded its definition of non-independent directors to include a director who is an immediate family member of a company executive and a director who is employed by a company that owns more than 20% of the stock.

Board Structure

• Independent chair: The independent chair should be someone who has not had a substantive employment relationship with the company in the past five years.
• Board diversity: CalSTRS wants boards to adopt and disclose a “Rooney Rule” in their governing documents with a commitment to identify diverse director candidates in every board search. CalSTRS has added “perspective” to its list of diversity attributes. It also wants boards to annually disclose their director demographic information in their proxy statements. CalSTRS will hold the nominating/governance committee or, if necessary, the entire board accountable if there is insufficient progress on board diversity.

Board Roles and Responsibilities

• Director time commitment: CalSTRS has extended its CEO overboarding limit of two total public boards to all company executives. It also eliminated its limit of four public boards for other directors. Instead, Cal- STRS will look at various factors, such as participation on key committees, in determining if the director’s public board service is excessive.
  Board oversight
• HCM: Companies should employ effective oversight of HCM practices for their domestic and international employees, as well as employees throughout their value chain. CalSTRS has expanded its definition of HCM to include fair labor practices, pay equality, incentives and compensation, and employee retention and development.
• Human capital reporting: CalSTRS has added a new section to its principles on human capital reporting which should include four foundational metrics: workforce headcount, total cost of the workforce, workforce stability (turnover and retention), and workforce diversity.
• Employee diversity disclosure: Companies should annually disclose their EEO-1 report. In addition to providing context for workforce investment and strategy, CalSTRS states that this information will allow investors to assess the board’s diversity relative to its workforce diversity.

Board accountability to shareholders

• Majority-voted shareholder proposals: CalSTRS’ principles now explicitly state that it will hold the entire board accountable if it fails to respond to a shareholder proposal that receives majority support.
• Shareholder engagement: In a new section, CalSTRS wants boards to implement a process for taking into consideration shareholder views on material issues. The company should provide annual disclosure of how shareholder engagement contributed to board discussions.

Principles for Executive Compensation

• ESG metrics: CalSTRS has added a new section to its principles specifying that companies should determine how to best incorporate material ESG risks into compensation plans. The metrics should be measurable and linked to the company’s ESG risks or key priorities.

Capital Structure

• Authorization of shares: CalSTRS has raised its threshold for acceptable common stock increases from 15% of outstanding shares to 20%.
• ESG Risks and Opportunities: This section was updated to describe how CalSTRS incorporates ESG risks and opportunities into all aspects of its investment portfolio. It references its Investment Beliefs and its Investment Policy for Mitigating ESG Risks⁵

¹ See BlackRock’s 2024 guidelines here.
² See Fidelity’s 2024 guidelines here.
³ See a redline of CalSTRS’ 2024 corporate governance principles here.
⁴ For information on the ISSB standards, see here
⁵ See CalSTRS’ Investment Beliefs here.