We Three Kings: Disintermediating Voting at the Index Fund Giants

Caleb N. Griffin

The meteoric rise of passive investing has placed three large index funds—Vanguard, BlackRock, and State Street—in a new and pivotal role as the arbiters of corporate law controversies and the framers of market-wide governance standards. This Article will propose reshaping the approach to investment stewardship at the Big Three index funds to empower individual index fund investors and to enable their involvement in the decision-making process. The involvement of individual investors could take one of three forms. First, an “indirect democracy” approach would allow individual investors to elect to have the votes corresponding to their indirect share ownership cast according to the recommendations of a particular agent. Second, a policy of “informed discretion” would entail solicitation by index fund providers of more information about the characteristics and values of their investors, which they would use to better inform their voting decisions. Third, “pass-through voting instructions” would give individual investors the opportunity to participate in shareholder voting by completing a general, issue-based survey about how they desire to vote on a number of key issues. The uniting feature of all three approaches is that they would involve individual investors in the voting process to a greater degree, thereby diminishing the power of index fund agents, mitigating concerns about the concentrated power of index funds, and reducing agency costs.