Nov 14, 2019

The paradox of shareholder capitalism

Illustration: Sarah Grillo/Axios

How much power do shareholders have over companies? Judging by Uber CEO Dara Khosrowshahi's comments to "Axios on HBO" this week, it must be quite a lot.

Catch up quick: Khosrowshahi praised Yasir Al-Rumayyan, who sits on Uber's board and is a close friend of Saudi Crown Prince Mohammed bin Salman. "He's been a very constructive board member," Khosrowshahi said, "and I personally have valued his input greatly."

  • When Axios' Dan Primack pointed out that Al-Rumayyan represents the government that murdered Washington Post columnist Jamal Khashoggi, Khosrowshahi's first instinct was to play down the enormity of the crime. "I think that government — said that they made a mistake," he said, before later clarifying that "there's no forgiving or forgetting what happened."

The big picture: Enormous shareholders like Larry Fink, the CEO of BlackRock, are regularly imbued with awe-inspiring powers. Fink is "one of the most influential investors in the world," per NYT's Andrew Ross Sorkin, wielding "clout" and "outsize influence."

  • Protestors at the reopening of the Museum of Modern Art last month targeted Fink in particular, saying that because BlackRock owns shares in private prison companies, he was not doing enough to "get rid of mass incarceration."
  • Fink would seem to be a juicier target even than MoMA chairman Leon Black, who runs a multibillion-dollar private equity firm and who gave $10 million to Jeffrey Epstein's personal charitable foundation.

Reality check: Fink in reality has very little clout. Most of the money that he manages is in index funds, which means he has no discretion as to where to put it. If a private prison company is in an investable index, then BlackRock is going to be one of its shareholders.

  • Fink has some discretion over which companies are included in his environmentally conscious fund. Yet even that fund invests in massive polluters like ExxonMobil.
  • Even if Fink divested entirely from such fossil fuel and private prison companies, that would make no difference to their business model or their profitability.

Driving the news: Just about the only real power Fink has comes from his ability to vote his shares to nudge companies in a more ethical direction. But a Reuters analysis of his voting record shows that he doesn't even do that.

  • By the numbers: BlackRock backed only 10% of climate-related shareholder resolutions in 2018.

The bottom line: Activist hedge funds can strike fear into the heart of CEOs, as can countries using their sovereign wealth funds to achieve geopolitical ends. But those skills seem to elude individuals, social activists, and even multitrillion-dollar investors like Fink.

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The BlackRock affair

Photo: Richard Lautens/Toronto Star via Getty Images

Mark Wiseman is out at BlackRock, where he was considered a possible successor to CEO Larry Fink, after engaging in a consensual affair with a subordinate without disclosing it to the company.

The big picture: He's already been removed from the company website, and emails to his BlackRock account bounce back. Wiseman, whose wife also works at BlackRock, joined in 2016 after leading the Canada Pension Plan Investment Board.

Go deeperArrowDec 6, 2019

Uber's driverless technology strategy

Uber self-driving test vehicles in Pittsburgh. Photo: Angelo Merendino/AFP via Getty Images

Uber CEO Dara Khosrowshahi says the first AVs could be deployed on the ride-hailing network within three to five years, but other companies will bear the cost of owning and maintaining those self-driving cars.

Why it matters: Driverless technology is a key to profitability for Uber, which has warned investors to expect losses of almost $3 billion this year. But if all it does is replace the cost of a human driver with the overhead from managing its own fleet of self-driving cars, it won't be any closer to achieving a profit.

Go deeperArrowNov 15, 2019

California's "women quota" in boardrooms faces pushback

Illustration: Eniola Odetunde/Axios

California’s unprecedented law requiring all public companies headquartered there to have at least one female board member by 2020 is drawing lawsuits.

Why it matters: Pressure to diversify corporate boards has historically come from shareholders and special interest groups. With California's law poised to take effect — and at least three states weighing similar legislation — critics are raising the question of government overreach.

Go deeperArrowNov 18, 2019