The New Mandate Owners: Passive Asset Managers and the Decoupling of Corporate Ownership

A new article by the CORPNET group has been published in the June  2017 issue of the Antitrust Chronicle (pp. 51-57). The piece, “The New Mandate Owners: Passive Asset Managers and the Decoupling of Corporate Ownership”, is written by Carmel Shenkar, Eelke Heemskerk and Jan Fichtner and can be found here.

Abstract A major shift toward passively managed index funds in recent years has led to the re-concentration of corporate ownership in the hands of just three large asset management firms, the Big Three: BlackRock, Vanguard and State Street. We propose that this trend has re-structured ownership in capital markets. Adopting a contractual view to the corporate share, we re-define share holding and suggest that the New Mandate Owners in fact hold the essence of corporate power, as their aggregated positions capture the core element of the franchise of corporate voting.

Big Three paper published in Business and Politics

A new paper by the CORPNET group has been published in the June issue of Business and Politics journal (pp: 298-326). The article, “Hidden power of the Big Three? Passive index funds, re-concentration of corporate ownership, and new financial risk”, is written by Jan Fichtner, Eelke Heemskerk and Javier Garcia-Bernardo and can be found here.

Abstract
Since 2008, a massive shift has occurred from active toward passive investment strategies. The passive index fund industry is dominated by BlackRock, Vanguard, and State Street, which we call the “Big Three.” We comprehensively map the ownership of the Big Three in the United States and find that together they constitute the largest shareholder in 88 percent of the S&P 500 firms. In contrast to active funds, the Big Three hold relatively illiquid and permanent ownership positions. This has led to opposing views on incentives and possibilities to actively exert shareholder power. Some argue passive investors have little shareholder power because they cannot “exit,” while others point out this gives them stronger incentives to actively influence corporations. Through an analysis of proxy vote records we find that the Big Three do utilize coordinated voting strategies and hence follow a centralized corporate governance strategy. However, they generally vote with management, except at director (re-)elections. Moreover, the Big Three may exert “hidden power” through two channels: First, via private engagements with management of invested companies; and second, because company executives could be prone to internalizing the objectives of the Big Three. We discuss how this development entails new forms of financial risk.

CORPNET receives NWO Visitors Grant for dr. Michał Zdziarski.

CORPNET receives an NWO Visitors Grant to host dr. Michał Zdziarski, Head of Strategic Management and International Business at University of Warsaw. With the NWO Visitors grant researchers can host highly qualified senior researchers from abroad for a maximum of four months.

Michał Zdziarski is currently working with the CORPNET group on the global topology of business groups. The research interest in particular is to better understand social distance as driver for firm strategic behavior, such as foreign market entry.

Global Corporate Elite paper published in Sociologica

A new article by the CORPNET group has been published in issue 2 of 2016 of the sociologica journal. The piece, ‘Where is the global corporate elite? A large-scale network study of local and nonlocal interlocking directorates‘, is written by Eelke Heemskerk, Frank Takes, Javier Garcia-Bernardo and Jouke Huijzer and can be found here.

Abstract
Business élites reconfigure their locus of organization over time, from the city level, to the national level, and beyond. We ask what the current level of élite organization is and propose a novel theoretical and empirical approach to answer this question. Building on the universal distinction between local and nonlocal ties we use network analysis and community detection to dissect the global network of interlocking directorates among over five million firms. We find that élite orientation is indeed changing from the national to the transnational plane, but we register a considerable heterogeneity across different regions in the world. In some regions the business communities are organized along national borders, whereas in other areas the locus of organization is at the city level or international level. London dominates the global corporate élite network. Our findings underscore that the study of corporate élites requires an approach that is sensitive to levels of organization that go beyond the confines of nation states.

Blog on Offshore Finance posted on the LSE Business Review

A blog by the CORPNET group can be found on the LSE Business Review website. The piece, ‘Network analysis shows offshore finance as a complex network of ownership ties’, is written by Jan Fichtner and can be found here.

Abstract
The EU made a move in August to force Apple to pay €13 billion in unpaid taxes. The episode has quickly become emblematic of the EU’s fight against corporate tax avoidance, a dispute which intensified in the aftermath of the 2009 financial crisis. As Europeans see it, this is about the need to provide a level playing field between US and EU businesses. If a UK-based retailer pays a lot more taxes than US-based Amazon, it will never be able to compete fairly. The OECD, “the organisation charged by the G8 and more recently the G20 to develop international standards as part of the fight against tax avoidance and evasion” saw its ambitions watered down after intense political pressure. In this article, CORPNET’s network analysis allows us to visualise how multinational corporations structure their ownership ties, a key element in tax avoidance.