An unsolved problem in American corporate governance is that a few big asset management firms have through their index funds grabbed dominating voting power in hundreds of corporations by voting shares which represent not a penny of their own money at risk. They have in effect said to the real investors whose own money is at risk, “I’ll just vote your shares. I’ll vote them according to my agenda. I don’t want to bother with what you think.”
This obviously opens the door for the exercise of hubris, as has perhaps notably been the case with BlackRock, but more importantly, it violates the essential principle that the principals, not the agents, should govern corporations. This principle is well-established and unquestioned when it comes to broker-dealers voting shares held in street name. The brokers can vote on significant matters only with instructions from the economic owners of the shares. Exactly the same clear logic and rule should apply to the managers of the passive funds which have grown so influential using other people’s money.
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