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BlackRock urges CEOs to not stretch themselves too thin

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BlackRock urges CEOs to not stretch themselves too thin

BlackRock Inc. wants CEOs to cut down on their time spent serving on other companies' boards.

The world's largest asset manager voted against 94 individual CEOs who were seeking a director position on another U.S. company's board between July 2018 and June 2019, according to a recently released BlackRock report detailing its investment stewardship efforts for the past year. That marked a stark difference from the 32 votes against similar proposals that BlackRock cast a year before. BlackRock did not include cases where the CEO is serving on the board of their own company in those vote totals.

"Increasingly, companies are limiting the participation of CEOs on outside boards," BlackRock wrote in the report. "We expect these trends will lead to improved governance as both independent and CEO directors have the time to be more focused on a more limited number of companies."

While BlackRock previously said CEOs could manage two external board seats, the asset manager revised its policy ahead of the 2018 proxy season to say that companies' chief executives should only be allowed to serve on the board of one publicly traded company outside of their own. BlackRock also cast 69 votes in the U.S. against individual directors on the basis of overcommitment between July 2018 and June 2019, versus 79 times in the prior year. That drop was largely caused by the fact that independent directors are not serving on as many boards as they did in the past, the company said.

The asset management giant's push for CEOs to limit their outside commitments marks its latest corporate governance reform effort since Chairman and CEO Larry Fink urged companies in his 2018 annual letter to show how they make "a positive contribution to society."

With $6.8 trillion in assets under management behind it, BlackRock has been using its position as a leading shareholder for many publicly traded U.S. companies to incentivize long-term executive compensation packages, assess their environmental impacts and promote board diversity. According to the report, in the 2019 proxy season, BlackRock voted against board nominees at 52 companies included in the Russell 1000 that had fewer than two women on their boards or no other diverse directors.

BlackRock, along with a mix of other market participants including State Street Global Advisors Inc. and California Public Employees' Retirement System, has been advocating for companies to add more women to their boards, which it says can ultimately lead to better financial returns. Those institutions' efforts have found some successes, too.

Roughly 122 companies in the Russell 1000 index added at least one woman to their boards in the year leading up to June 2019, BlackRock wrote in its report. That means that just 178 companies in the index are left operating with fewer than two women on their boards, which is down from 30% of the index in 2018, according to the report.

In July, online car auction company Copart Inc. broke up its all-male board by adding Diane Morefield, CFO at CyrusOne Inc., as a director. The company was the only remaining member of the S&P 500 at the time that did not have a woman on its board.

"The acceleration in the increase in the number of women on public company boards is, in part, attributable to the engagement undertaken by investors, including voting on director elections," BlackRock wrote in its report. "Given our view that diverse boards add a valuable perspective to companies, we will continue to monitor companies' overarching approach to board quality and composition."