Margins: Estimating the Influence of the Big Three on Shareholder Proposals

Awareness of the systemic challenges posed by environmental and social issues has driven regulatory action undertaken at the EU level more strongly by far than in any other jurisdiction. Some pieces of regulation adopted under the umbrella of the so-called European Green Deal rely on institutional investors to drive a shift towards sustainable finance. But in spite of the growing practical relevance of active share ownership, including in its environmental and social dimensions, whether institutions are motivated, and are actually able, to effectively play such crucial a role remains controversial. Even assuming they were committed to not just cosmetically address environmental and social issues, still there are limitations to the reasonable reach of investor action in face of the scale of the challenges at stake. Limitations not only derive from the deficient incentives structure and the collective action issues that are typical of asset managers. They also depend on factors not in control of the asset manager, such as varying end-investor preferences and availability of better ESG data and information. The problem of divergent, and opaque, ESG ratings and indices couples with that of non-consistent frameworks for corporate sustainability disclosures, and the underlying differing concepts of materiality, making it hard for investors to resort to reliable yet essential information they need to properly perform sustainability assessments. Some skepticism concerning institutions’ disposition to sustainability seems to be justified also where evidence referring to their actual voting behavior at investee firms is considered.

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“… 150 ShareAction ( 2021 ), p 25. These data are consistent with Griffin ( 2020a ), pp 411, 422, 444. See also Posner ( 2021 ).…”

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confidence: 90%

Institutional Investor ESG Engagement: The European Experience

Balp

Strampelli

2022

Eur Bus Org Law Rev

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“…Or, in the words of Bogle (2019, p. 252), 'their only alternative is to press the management for improvement, or change the management. Index funds as a group will soon have the voting power to do just that' (see Griffin, 2020 for an analysis of the voting power of the Big Three in the United States).…”

Section: The New Era Of Passive Investing and Its Impact On Corporatementioning

confidence: 99%

The New Permanent Universal Owners: Index funds, patient capital, and the distinction between feeble and forceful stewardship

Fichtner

Heemskerk

2020

Economy and Society

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Fundamental change is happening in global financethe shift from active management to index funds. This money mass-migration into index funds has farreaching socioeconomic consequences, as it has the potential to transform the nature of shareholder capitalism. We call BlackRock, Vanguard and State Street the 'New Permanent Universal Owners' that are invested indefinitely in thousands of firms. We provide novel findings on the combined ownership of the Big Three in European countries and Japan and investigate how this signals a shift away from the shareholder capitalism that has been dominant for the past three decades. We discuss the future role(s) of the New Permanent Universal Owners in corporate governance including whether they foster patient capital and introduce the distinction between feeble and forceful stewardship.

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“…Extrapolating from past trends, Bebchuk and Hirst (2019a) estimate that by 2038, the Big Three could own 30% of companies in the Russel 3000 index and cast as much as 37% of the total votes. By examining data on the voting margins at the Fortune 250 companies in 2018 and 2019, Griffin (2020) further found that the Big Three already have enough power to determine the outcomes of most shareholder proposals in the largest U.S. companies. Baines and Hager (2022), on the other hand, examined the influence of the Big Three as a shareholder in 55 companies listed within the "Carbon Majors" (Griffin, 2017), finding that of 141 environmental governance resolutions proposed between 2014 and 2021, the votes of the Big Three were pivotal in 42 cases (or 30%), swinging resolutions toward failure in 30 cases (or 21%).…”

Section: Structural Power Of Asset Managersmentioning

confidence: 99%

Who owns and controls global capital? Uneven geographies of asset manager capitalism

Gibadullina

2023

Environ Plan A

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Since the 1980s, U.S. finance has grown disproportionately in power and influence as American investment funds have become the largest shareholders of U.S. corporations, managing tens of trillions of dollars in investments. This paper provides a novel empirical analysis of the ascent of asset manager capitalism in the United States and explores the extent of its global spread by examining the SEC Form 13F filings of U.S. institutional investors along with an extensive global corporate ownership dataset provided by Orbis. This paper finds that U.S. finance owns approximately 60% of U.S. listed companies (an increase from 3% in 1945) and 28% of the equity of all globally listed firms. As the largest global shareholders and the exemplars of U.S. asset managers, the Big Three hold investments in 81% of U.S. listed companies and own 17% of the U.S. equity market, while also appearing as a shareholder in 20% of non-U.S. listed companies and owning 4% of the non-U.S. equity market. This paper illustrates that the ascent of the age of passive investment and universal ownership, exemplified by the activities of the Big Three, has produced a sectorally and geographically uneven landscape of capital flows, exacerbating the existing divides between the heartlands and hinterlands of global financial markets. With the ownership of listed companies being increasingly concentrated in the hands of a small number of increasingly powerful funds, this paper ultimately argues that it is in the ownership of the majority of global capital that the power of modern finance lies.

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Margins: Estimating the Influence of the Big Three on Shareholder Proposals

Cited by 6 publications

References 3 publications

Institutional Investor ESG Engagement: The European Experience

Institutional Investor ESG Engagement: The European Experience

The New Permanent Universal Owners: Index funds, patient capital, and the distinction between feeble and forceful stewardship

Who owns and controls global capital? Uneven geographies of asset manager capitalism

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