This commentary by Free Enterprise Project Director Scott Shepard was originally published at RealClearMarkets.

An ever-growing series of red states have pulled some or all of their assets from BlackRock’s management in light of that company’s oft-repeated commitment to ignore its fiduciary duties and to use the power of all of the assets invested with it (not just the ones invested in ESG-labeled funds) to push the twin ESG goals of equity-based discrimination and decarbonization according to activist-generated schedules that butcher the science while taking no account of technological, financial or geopolitical realities.

Scott Shepard

Florida was the most recent state to move, pulling $2 billion from BlackRock. Other withdrawing states have included Louisiana, South Carolina, Utah, Arkansas, West Virginia, Missouri, Texas and probably some others that I’m forgetting.

This is certainly a great – and heartening – start. But even though BlackRock had heavier losses at various points in 2022 than any company had ever suffered, it still manages assets valued at over $8 trillion, and has done nothing to abandon its determination to abuse its management of those assets in accord with its executives’ political policy preferences. And with its partners in crime at State Street and Vanguard, that number rises toward $20 trillion. Compared to that, these withdrawals are effectively precatory. Stopping the giant investment houses’ conversion of the power of investors’ assets for their own personal policy purposes is going to require … stopping that conversion, by lawsuit if currently possible and by amendment to state corporation, banking, insurance, investor-protection and non-discrimination laws if necessary.

Even with specific regard to the relevant states’ assets, though, mere withdrawal of funds from Larry Fink and his minions’ clutches isn’t sufficient. The states then have to use the power of those assets carefully, responsibly and in their constituents’ interests.

Their first responsibility in this regard is to vote the proxy ballots with care. For the benefit of those who own assets mainly through ETFs and other fractional-investment strategies: if you own shares in specific companies outright, you receive, as a right appurtenant to that ownership, one vote per share owned on every matter placed before shareholders. These are called proxy votes, and are cast with regard to issues placed on corporate proxy statements: issues including the election of board-of-director members, advisory votes on director and executive pay, and proposals meant to steer the company’s development that are submitted by other shareholders.

While shareholder proposals seldom get the approval of a majority of proxy votes cast, board members tend to take seriously any proposals that garner a significant number of votes, even though they falls short of a majority. As the withdrawing states collectively hold billions of votes in each of the companies they own, how they vote now that they have taken back control of their assets is a big deal.

It is a particularly big deal because the vast majority of shareholder proposals have been offered by leftwing activists whose proposals seek to push corporations even further and ever-further in the woke direction. State fund managers who care about their constituents’ futures must be careful to vote against those proposals. Meanwhile, an increasing number of center/right organizations have begun to submit their own proposals designed to get corporations back to their fiduciary duties – back to flying us around the country and making us fizzy drinks and coffee and shoes – and out of hard-left politics. (Disclosure: I am the director of what for a long time was the only shareholder-activism outfit on the right.) Red-state fund managers thus have to vote with particular care, because in the mountain of shareholder-proposal dross there are (if I do say so myself) some gleaming diamonds seeking return to fiduciary duty and social-policy neutrality that they may well want to support.

Because large institutional investors, including these states, tend to own hundreds or thousands of companies, they have thousands or tens of thousands of different proxy “questions” to vote every year, and most don’t have the staffing to do it themselves. Traditionally they have therefore either not voted the proxies at all, have allowed investments houses to vote their proxies for them, or have relied on the proxy advisory services, ISS and Glass Lewis.

The red states’ withdrawal of their assets from BlackRock represents a belated recognition that it and the big-three investment houses generally cannot be trusted to vote in the objective interests of their investors. But neither can they rely on ISS or Glass Lewis, the proxy-advisory services that control 97 of the proxy-advisory market. What’s that, you say? Duopoly? Why yes, it certainly is. It’s the exact sort of thing that a consistent and uncorrupt FTC would be barreling forward to break up, under Lina Khan’s view of anti-trust.

Why she isn’t is why sensible investors can’t rely on these institutions: they’ve been captured entirely by the left, with each competing with the other to take a harder-left position on individual issues. At least one of them explicitly counts all shareholder proposals that aren’t submitted by leftwing groups as “anti-social,” and automatically votes against them – even if the fundamental purpose of the proposal is something it would support if it came from a leftwing organization. Beyond that, ISS and Glass Lewis are horrendous tangles of improper conflicts of interest, starting with the fact that they are owned by Canadian and European entities that have a vested interest in saddling U.S. companies by private action with the same crushing regulatory burdens that the Canadian government and the EU monstrosity have lumbered on their firms.

The systems that the withdrawing states have used so far to cast their proxy ballots have failed them. Consider, for instance, that in 2022 the Florida Retirement System (FRS) voted in favor of a lobbying-disclosure proposal at Walmart that was designed to keep companies from supporting organizations that oppose shoplifting and equity-based discrimination, while at the same meeting voting against a proposal that would have required the company to review its expressly discriminatory hiring and promotion policies to make sure they weren’t violating the civil rights of the employees discriminated against. FRS voted in favor of a shareholder proposal at Meta that sought enhanced censorship of information that it labeled as “misinformation” and “hate” – but a government that was attacked for the passage of a “don’t say gay” law that itself never said gay at all should know better than wanly to accept leftwing definitions of what those terms mean.

These examples are the merest glimpse into the myriad ways in which red-state fund managers are voting against their constituents’ interests.

What other options do states have? They can vote their proposals themselves, though that certainly will take a significant amount of time and some staffing. If they elect to do so, they can rely on voting guides that the Free Enterprise Project (again, which I direct) produce every year. They can also look to Strive Asset Management, which recently announced that it will be offering an automated voting system to institutional investors that will make proxy recommendations in line with its philosophy that corporations should reward merit to achieve excellence, nothing else. (The organization that I direct will also be running a beta test in 2023 of an additional automated option for those who seek to vote according to explicitly center/right criteria in the following year.)

Another choice is for red-state or other sensible investment-fund managers to invest their assets with investment houses that compete with the big three and that have dedicated themselves to voting their investors’ proxies on grounds other than WEF and NPR dictates. These include the previously mentioned Strive, as well as the iUSA ETF from Amberwave Partners and offerings from 2^nd Vote Advisers and the American Conservative Values ETF. The National Security Emerging Markets Index will soon be active as well.

Beyond proxy voting, red-state asset managers must also begin to submit their own shareholder proposals designed to move companies back to their fiduciary duties. In doing this they would be opening new ground – but only for center/right state governments. Blue state pension funds have been at it for years. Ditto with direct engagement by fund managers with corporate executive suites. Because only the left has been showing up, the left has been winning – the result being that much of America’s corporate world has flung itself leftward. It’s time at least to even the score.

Yanking money from BlackRock was terrific. Now get back to work.

Scott Shepard is a fellow at the National Center for Public Policy Research and Director of its Free Enterprise Project. This first appeared at RealClearMarkets.