- 🔎 Market Mysteries
🔎 Market Mysteries
Who's really pulling the strings in the economy?
While business leaders have begun considering their employees, customers, communities, and planet in their strategic decisions, the economy is still primarily prioritizing the interests of shareholders. Investors have the most significant power to shape corporate strategy. The biggest shareholders carry the most influence. A handful of companies - namely BlackRock and Vanguard - own commanding proportions of nearly every public company, making their opinions the deciding factor in most boardrooms.
Who can influence corporate decisions?
Companies determine policy through a multi-tiered process that involves executives, boards, and shareholders. Executives, such as CEOs and top management, are responsible for day-to-day operations and strategic planning. The board of directors acts as the boss of the executives - hiring, firing, setting their pay, and directing strategic priorities. The ultimate bosses are the shareholders, who elect the board members and weigh in on crucial policy decisions.
While every shareholder has the right to express their opinions, the degree of influence varies based on the size of their holdings. During annual meetings, direct shareholders, especially those with substantial stakes, have direct access to the board and can weigh in on executive pay, mergers, and other strategic changes. To propose changes or resolutions, shareholders must meet specific minimum ownership requirements. These requirements vary among companies.
You don't have a vote if you don't own a company's shares directly. Individual investors relinquish their voting rights when investing through mutual funds or exchange-traded funds (ETFs). The mutual fund or ETF manager assumes the responsibility of voting on behalf of their shareholders.
Who has the most influence?
In today's financial landscape, with so many investing through index funds, a few giant asset management firms hold an outsized influence. BlackRock, Vanguard, Fidelity, and State Street are four major players in the industry, collectively managing more than $25 trillion in assets across their many investment funds. BlackRock and Vanguard are nearly twice the size of their nearest peers. The group is responsible for over 80% of the global index fund market.
When you invest in their funds, they own your vote, giving them immense voting power.
BlackRock, Vanguard, Fidelity, and State Street collectively control nearly 25% of all of the stock of every public company, which could reach 40% by the end of the decade. After 50%, that's a controlling interest.
One of either BlackRock, Vanguard, or State Street is the largest shareholder in 9 out of 10 of the largest 500 companies in America.
One of them is a top-three shareholder in every company in the S&P 500, giving them the loudest voice in policy decisions for every global corporate power.
The immense size of these asset managers has its benefits. Their size allows them to reduce investing costs to fractions of a percentage of assets. Cheap index funds have democratized the investing universe, dramatically expanding access to diversified investment funds for retail investors. Their growth has been a function of their utility. With great power comes great responsibility.
What do they do with their influence?
These asset managers face increased scrutiny over their corporate influence. While there was little transparency into historical voting and pressure campaigns, they were expected to primarily vote in line with the board's policy recommendations. BlackRock, Vanguard, and State Street have shifted their approach toward greater activism and engagement in the past few years. While there have been notable strategy shifts, much of the increased "activism" has resulted from the growing volume and financial relevance of social and environmental policy proposals.
BlackRock announced big plans to influence responsible social and environmental policies but stumbled in the face of political backlash. Blackrock made waves when it announced its use of proxy voting to push climate-conscious agendas. In one of the most famous boardroom battles of the decade, BlackRock supported a proposal from Engine No 1, an activist investment firm, to add environmentally-focused board members to oil giant Exxon Mobil's board. However, fossil fuel lobbyists and politicians have ramped up legal and political opposition to those efforts, slowing sustainability and worker rights progress.
The most prominent asset managers don't support environmental and social resolutions as much as smaller investors. Vanguard supports only half of the number of environmental, social, and governance proposals BlackRock and State Street do. Overall, all of their burst of sustainability support seems short-lived. BlackRock's support for proposals on social and environmental issues dropped from 47% in 2021 to 7% this year. Vanguard voted in favor of just 2%, down from 12%. The biggest investors don't agree on everything, making it more important to track their decisions.
How can I gain influence?
While the influence of asset managers like BlackRock and Vanguard cannot be ignored, there are avenues for individual investors to express their voices and participate in shaping corporate policies. Owning individual stocks grants you direct voting power, enabling you to participate in shareholder meetings and influence policies more granularly. It might feel like your vote doesn't matter, but platforms like Iconik provide tools to help you vote alongside advocacy groups like As You Sow on important sustainability and impact-related issues.
While we shouldn't necessarily shift away from index funds, we have some evolving options for the bulk of our investments. Some new funds, like Engine No. 1's VOTE, are designed to grant voting power to retail investors while investing in the same broader index. BlackRock and other asset managers are exploring ways to allow retail investors to vote on issues with pass-through proxy voting. As these initiatives progress, you may have the opportunity to exercise your voting rights.
Influencing corporate decisions extends beyond shareholder voting rights. You can leverage your power as a consumer and employee by making conscious choices to support companies that align with your values. Follow your scoops to understand executives' decision-making and identify which companies you believe in.
Share Scoops gives the 99% a voice in the boardroom regardless of what's in their investment account. From your votes and reactions to each company scoop, we've built a sentiment rating system with over 200,000 votes across more than 300 companies and thousands of news events. With the launch of our mobile app, we'll be scaling up the feedback loop on Corporate America to create an alternative to proxy voting. By exploring options that allow us to align our investments with our values and utilizing our platform for collective voice and feedback, we can play an active role in driving positive change.
The Scoop Team
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