Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

Research by Lucian A. Bebchuk, Harvard Law School, and Scott Hirst, Boston University School of Law, indicates three key index fund advisors could cast 34% of votes in the next decade at S&P 500 companies, and about 41% of votes at S&P 500 companies in two decades. The key index fund managers are BlackRock, Vanguard, and State Street Global Advisors.

Extrapolations of the make-up of the public securities markets 20 years into the future are often notoriously unreliable.  Nevertheless, the magnitude of the statistic is eye-opening and perhaps someday it will be viewed as akin to an early warning of global warming.

There are at least two possible outcomes of this voting concentration should it occur.  Research by Professor John Coates theorizes investment managers will excessively use the power that comes from their large ownership stakes.  On the other hand, Professors Bebchuk and Hirst theorize the index fund managers will be excessively deferential to corporate managers. Their concern is that the substantial proportion of equity ownership with incentives towards deference will depress shareholder intervention overall, and will result in insufficient checks on corporate managers.

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