Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
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http://news.morningstar.com/articlenet/ ... ?id=825052
Activist investing and proxy battles are typically associated with pugilistic hedge fund managers, so a panel of the world's three largest passive investors speaking about shareholder activism at the Morningstar ETF Conference was a sign of changing times. Jon Hale, Morningstar's head of sustainability research, was joined by the heads of stewardship for BlackRock, Vanguard, and State Street Global Advisors.
The topic was thrust into the limelight earlier this year when Exxon Mobil's shareholders, including the three asset managers represented on the panel, voted in favor of a resolution calling for climate-related disclosures.
Michelle Edkins of BlackRock took pains to stress that their vote wasn't about values, insisting that "environmental and social risks are financial risks." She said BlackRock was simply acting in its role as a fiduciary of long-term investor assets.
Vanguard's Glen Booraem maintained that his firm focuses on issues that are material to performance and companies to which fund shareholders are most exposed. . . .
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The big index fund companies and corporate governance make for a very interesting combination. Quite honestly, I don't know what to think of it. I think Vanguard, Fidelity, Blackrock, and the like ought to stay out of such things as political issues but should focus on corporate governance, long term perspective, and looking out after the shareholders and not top management. One big issue is insisting upon truly independent directors and that the CEO and Chairman of the Board jobs need to be separated and filled by different people. Too often, CEO's act like they own 100% of the company, but they are only stewards for the shareholders. A lot of these CEO's are too big for their britches in my opinion and I hope the big index providers help rein them in. Excessive executive compensation needs to be addressed. In my opinion, there are some who need desperately to be shown the door.
Pretty much I am saying that company executives should manage their businesses and not just the stock price. I know it is a crazy, far out idea. It is so crazy, it might just work.
A fool and his money are good for business.
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People often say "Passive owners have no leverage with companies because they can't threaten to sell".
Vanguard owns 5 to 10 percent of many (if not most) US companies. If you own 10% of a firm, and a few other companies (like Blackrock) also own similar amounts, you have a lot of power.
Sure, Vanguard can't sell so long as the company stays in the index. It can, though, vote at annual meetings. If a director isn't listening to Vanguard's concerns, Vanguard can vote against that director and potentially make them loose their job. People tend to listen when their jobs are on the line - and if they don't listen, they can be replaced by someone who will listen.
(If you haven't held individual stocks before - at most companies shareholders get to vote annually on major things like electing members of the board of directors. Shareholders can propose and pass significant resolutions, as well. With a one share/one vote policy, those who own 10% of the company get 10% of the votes! Ownership is about more than dividends, you actually own and control fraction of the company. Vanguard votes on behalf of its investors at annual meetings).
Vanguard has the best interests of long-term investors at heart (unlike short-term active traders who only care about making a quick profit). This increased focus on the long term should make companies better equipped for stable, long term growth and stability.
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Warren Buffett said "our favorite holding period is forever." But no one ever accused him of being a passive owner.
The criticism of passive investing is unfounded. Good to see Morningstar calling attention to this.