Written by Charlie Barlow, Global Head of Sales, Tumelo.
In late 2023, the Federal Energy Regulatory Commission (FERC) launched a review of its policies governing the sale of shares in public utilities to institutional investors. In particular, FERC highlighted corporate America's increasing concern about the influence of large investment managers such as BlackRock, Vanguard and State Street (the so-called “Big Three”), in this instance wishing to reduce the leverage they have on the electric utility sector.
More recently, in Q1 of 2024, FERC clarified its upstream affiliate ownership disclosure requirements and determined that this would affect entities who own, control, or hold (with power to vote), 10% or more of the outstanding voting securities of such publicly traded entities with no guidance on when this would come into force.
At the heart of FERC is its core mission to ensure reliable, safe, secure and economically efficient energy for consumers at a reasonable cost. It believes this progress is being hindered by the Big Three and other large asset managers who hold relatively illiquid and permanent ownership positions in their sector and vote en masse on behalf of the millions of shareholders they represent.
With increasing support from large US asset owners and asset managers, pass-through voting provides a potential solution to this problem. By allowing underlying investors to vote their own shares, rather than asset managers voting on their behalf, pass-through voting allows for a wider range of stakeholders, including consumers and small businesses, to have a say in regulatory decisions, leading to more inclusive and democratic decision-making and more balanced regulatory outcomes.
By allowing a broader range of stakeholders to participate in the voting process, pass-through voting ensures that a more diverse set of views and interests are represented. This reduces the risk of large asset managers’ preferences overshadowing those of their underlying investors, something FERC is keen to encourage.
The concentrated voting power of large asset managers has raised concerns about the extent of their influence on corporate governance for some time now. Regulators (and independent agencies of the US government such as FERC) are paying increasingly more attention to the role of large asset managers in corporate governance, including examining whether their voting practices are in the best interests of their clients and whether they are exercising their fiduciary duties appropriately.
FERC and others can breathe a sigh of relief that voting choice is now a viable solution and that pass-through voting is on the charge.