More News: Are Three Big Index Funds on Track to 34% of All Shares Voted by 2030?

Research by Lucian A. Bebchuk, Harvard Law School, and Scott Hirst, Boston University School of Law, and reported in the Stinson Corporate & Securities Law Blog, indicates that “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.”

While noting that “Extrapolations of the make-up of the public securities markets 20 years into the future are often notoriously unreliable…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 theorizes [that] investment managers will excessively use the power that comes from their large ownership stakes.” (The likeliest outcome, in the OPTIMIZER’s opinion). “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.” A highly un-likely outcome, we’d opine; only an idiot would have power and fail to use it.)

We say…all the more reason to try to add more long-term individual investors. Increasingly, they are the swing voters in highly contested matters - and tend to give management proposals the benefit of the doubt - as long as their investment has performed ‘reasonably well’ - or management can make a good case that they are on a good path.

ANOTHER WILD CARD IN THE VOTING ARENA - VANGUARD TO CEDE SOME VOTING RIGHTS TO PORTFOLIO MANAGERS…

Vanguard, which manages $5.3 trillion in assets said in April that by year-end it will delegate the voting rights on $470 billion, or (9% of its holdings), to the portfolio managers.  Wellington Management will get nearly half the new voting power, with the rest divided among 24 other managers…Our own bet, since “activist investing” has been such a lucrative strategy for managers, is that this will significantly increase the number of votes for “activist agendas.”