Barbara Novick is Vice Chairman at BlackRock, Inc. This post is based on a Policy Spotlight issued by Blackrock.
Index funds have democratized access to diversified investment for millions of savers who are investing for long-term goals, like retirement. The popularity of index funds has, however, drawn critics who claim that index fund managers may wield outsized influence over corporations due to the size of their shareholdings in public companies. Some commentators speculate that the largest asset managers are determining the outcome of proxy votes. Central to this hypothesis is an assumption that the shareholdings of the largest asset managers are sufficiently sizeable to determine the outcome of proxy votes. An analysis of the margins by which proxy votes are won or lost demonstrates that this is rarely the case.
Director Elections
The Russell 3000 index is a broad-based index comprised of the 3,000 largest US public companies by market capitalization and thus provides a broad sample of US companies from which to analyze proxy voting activity. Assuming that a single asset manager can vote 10% of a company’s shares, Exhibit 1 shows that during the 2017-2018 proxy season, less than 1% of Russell 3000 director elections could have been decided by a 10% shareholder changing their vote. In addition, Exhibit 1 shows that in the 2017-2018 proxy season, 95% of Russell 3000 director elections were won by a margin greater than 30%. This means that even three 10% shareholders changing their votes in the same direction would not have changed the outcome.