Last week, Exxon Mobil, one of the world's largest publicly traded international oil and gas companies, lost a critical board fight with Engine No.1, a “woke” small investor group. The win was predictably spun by the mainstream media as a David vs. Goliath story as well as a milestone moment for a new type of altruistic Environmental, Social and Governance investor.
The truth, however, is more cynical than heroic. Among other things, this is a story of how a billionaire like Larry Fink, a true Wolf of Wall Street, uses other people’s money to simultaneously camouflage his checkered past and help promote himself as an elder statesman of the markets, a beneficent oligarch with a penchant for saving the planet.
The popular media narrative is that this latest Exxon shareholder campaign was conducted by a small group of activist shareholders. But Engine No. 1‘s effort to chivy Exxon into changing its business strategy to please environmentalist investors and their allies would likely have gone nowhere without the timely intervention of Fink, Chairman and CEO of BlackRock.
On Wall Street as elsewhere, size matters. BlackRock is the world’s largest asset management group, with more than $8.6 trillion under its control. To put that number in context, consider that the entire budget for the U.S. Government for FY 2021 totals $4.82 trillion. Compared to BlackRock, Exxon’s estimated $350 billion net worth makes it look like a mom-and-pop gas station. If this were a contest between David and Goliath, Exxon would be David with his meagre slingshot and BlackRock would be Goliath in the cockpit of a Lockheed Martin F-22 Raptor.
The immense size and clout of huge financial institutions like those run by Fink invite a couple of key questions. In this particular instance, the first and most obvious question is whether the gamble on ESG actually lives up to its hype as a smart investment strategy. I won’t leave you in suspense: Despite all the early anticipation, good intentions and applause, several studies have found either no comparative advantage in ESG investments or, worse, an actual negative effect. The second obvious question is directly related to the first one: Why, then, is Fink committed to an investment scheme that seems to have, at best, no discernable impact and might well be harmful? Because doing so makes him seem less like Gordon Gekko and more like Al Gore. But we know a wolf, even if he’s hiding in bespoke tie dye and birkenstocks.
And lest anyone forget, there’s also this: BlackRock doesn’t primarily invest its own funds. Like children, thieves and politicians, Fink enjoys that most delicious of all privileges – using other people’s money. That far greater supervision of such characters is urgently needed all around, but sorely lacking, seems obvious. Alas, we live in an upside-down age where no one is accused of greed for having the most elaborate designs and plans for using other people’s money – only for wanting to keep your own hard-earned cash.
When the group Fink helms uses the staggering amount of money it manages in order to throw their proverbial weight around, do any of their shareholders get a say in the matter?
After all, these asset management groups hold the savings and retirement plans of literally millions of Americans. These shareholders are real people who, in turn, hold a variety of political views across the political spectrum with regard to the environment, social policies and governance. Are their views being solicited? Are their voices being heard? If not, why not?
For that matter, it’s virtually impossible to determine if there’s much in the way of consultation between CEOs and their boards these days. Certainly, directors who disagree with this new lurch to the left have not been very visible or vocal. Or maybe they just consider it too dangerous in the present atmosphere. If this current lack of consultation and transparency isn’t worrisome to the Security and Exchange Commission it should be. In a day and age when just the right Goldilocks gender mix of corporate boards is being actively and seriously debated, shouldn’t there be more accountability between CEOS, their boards, and the shareholders they ostensibly represent? To be sure, investors can sell their BlackRock funds, but many invest through mutual and retirement funds. Most may not have the option of selling, or doing so may prove extremely inconvenient and time-consuming.
Pity the millions of small investors who trustingly put their money in BlackRock funds expecting their life’s savings would be carefully utilized to maximize a return on their investments, only to find it’s being used to finance a first-class ego trip by its CEO.
