We Three Kings: Lacking Representation in Index Fund Corporate Governance
Do you know who the largest investor in 9 out of 10 public companies is? An index fund from one of the three leading index fund providers, Vanguard, BlackRock, and State Street. Of course, those index funds are actually investing other people’s money, frequently through retirement vehicles. While index funds are “passive” in the sense they do not try to beat the market but rather replicate it, they are not passive when it comes to corporate governance issues, and with their considerable market power they may enjoy considerable influence over companies. But there is a potential problem: the people whose money is actually being invested have little-to-no say in how index funds police corporate governance. This lack of input threatens to take the democracy out of “shareholder democracy.” In his new article We Three Kings: Disintermediating Voting at the Index Fund Giants Prof. Caleb N. Griffin discusses the challenge of how to make index funds reflect the preferences of actual investors when it comes to corporate governance issues. If you are interested in this topic the article is well worth your time.
Director of Innovation and Governance and Senior Research Fellow
Mercatus Center, George Mason University
Financial Services & Corporate Governance
Federalist Society’s Corporations, Securities, & Antitrust Practice Group
The Federalist Society and Regulatory Transparency Project take no position on particular legal or public policy matters. All expressions of opinion are those of the author(s). To join the debate, please email us at [email protected].