Lucian Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance, and Director of the Program on Corporate Governance, at Harvard Law School. Scott Hirst is Associate Professor at Boston University School of Law and Director of Institutional Investor Research at the Harvard Law School Program on Corporate Governance. Related research from the Program on Corporate Governance includes The Agency Problems of Institutional Investors by Lucian Bebchuk, Alma Cohen, and Scott Hirst (discussed on the Forum here) and Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy by Lucian Bebchuk and Scott Hirst (discussed on the forum here).
We have posted to SSRN a presentation titled The Misguided Attack on Common Ownership. The document is based on the slides we prepared for presentation by one of us at FTC hearing on common ownership that took place last week. The slides discuss the implications of our research work—Bebchuk, Cohen, and Hirst, The Agency Problems of Institutional Investors (2017), and Bebchuk and Hirst, Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy (2018)—for the common ownership debate.
The claims of common ownership critics, we suggest, fail to take into account how the agency problems of investment fund managers provide them with incentives to under-invest in stewardship and to be deferential toward the corporate managers of portfolio companies. Given these problems, policymakers should be primarily concerned that investment fund managers engage too little and not that they engage too much. The measures advocated by common ownership critics are not merely unnecessary but would be counterproductive; they could well discourage investment fund managers from stewardship activities that should be encouraged.
The presentation is available here and any comments would be welcome.