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Dubious Corporate Practices Get a Rubber Stamp from Big Investors

Another problem: The structure of Arconic’s board — and Alcoa’s before it — is investor-unfriendly. It is what’s known as a classified board, in which directors’ terms are staggered, protecting them from being voted out en masse.

Nevertheless, two of the company’s largest shareholders, BlackRock and Vanguard, voted their clients’ shares in support of Alcoa’s management and board last year. And they rejected a proposal urging the company install an independent chairperson. At the time, Klaus Kleinfeld, Alcoa’s longtime chief executive, was also its chairman.

Had BlackRock and Vanguard favored the proposal for an independent chairperson, Mr. Kleinfeld might have been subject to greater oversight.

This may have been a good idea, given the bizarre sequence of events that forced Mr. Kleinfeld from his posts at Arconic last month. But we’ll return to that later.

BlackRock and Vanguard control a combined $9 trillion in assets, so how they vote their investors’ shares could not be more important. Their votes can hold boards and company executives accountable for their actions.

Or not, as in the Arconic case.

At last year’s annual meeting of Alcoa, BlackRock and Vanguard not only rejected the independent chairperson proposal, they supported generous pay practices at the company. Even as profits disappeared, compensation for the people in charge did not decline significantly. Both votes followed the recommendations of Alcoa management.

This is far from unusual. According to Proxy Insight, a data analytics firm that tracks shareholder votes, BlackRock voted in favor of 95.4 percent of management-sponsored proposals last year, while Vanguard sided 94.7 percent of the time with management.

Such support suggests that today’s corporations are models of perfection, requiring little change in the…

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