Thu, 11 Dec 2025 17:55:36 -0800 marlon from private IP, post #11946676 /all How to Save Corporate Governance From Passive Investing https://www.wsj.com/opinion/how-to-save-corporate-governance-from-passive-investing-22ff588b How to Save Corporate Governance From Passive Investing Mirror voting would correct the misaligned incentives that fuel bad decisions. By Jan van Eck Dec. 10, 2025 5:44 pm ET Sen. Lindsey Graham (R-SC) discusses President Trump's use of tariffs as an economic weapon against countries that have "cheated and robbed" the U.S. Passive asset managers have become the decisive voice in American corporate governance. This didn’t happen by design. It happened because passive investing became so successful at lowering costs and broadening access that it now dominates the market. More than 55% of U.S. households invest in stocks, and more than half of household savings sit in equities. Much of this is in index funds and exchange-traded funds that track broad benchmarks. That broad participation is one of the great achievements of modern finance. But with ownership came something else—outsize voting power. Passive strategies now hold more than half of U.S. equities, and the three largest managers—Vanguard, BlackRock and State Street—control nearly 30% of the voting power in S&P 500 companies. One firm holds so many votes that it had to split its operations to avoid triggering antitrust laws. Americans have always resisted concentrated authority, from the Founding Fathers to Teddy Roosevelt. Yet without public debate, we have drifted into a system where a few stewardship teams can determine the strategic direction of the nation’s largest corporations. Years ago, I said that if the asset-management industry didn’t address this growing concentration of voting power, policymakers eventually would. I take no pleasure in seeing that prediction come to pass. But fortunately, a solution is at hand. Mirror voting is as simple as it sounds. Passive funds would vote a capped portion of shares—say 10%—and the remaining votes would automatically mirror how other shareholders vote. If other investors support a proposal or a director by 75%, then the votes over the cap would be voted 75 to 25 as well. This preserves the integrity of corporate governance by ensuring that real oversight is exercised by those with the expertise and incentives to perform it. This isn’t theoretical. The first ETF—the SPDR S&P 500—already uses a form of it. Broadridge, the dominant proxy-vote clearinghouse for the U.S. market, has had the necessary infrastructure in place for years. Vanguard already offers mirror voting as an option in several funds. The operational model is proven. The only missing ingredient has been the industry’s willingness to adopt it. Instead, embracing their new powers, the large index firms used their voting blocs to advance sweeping ESG initiatives, often supporting proposals that were costly for companies but politically fashionable. These actions were defended on grounds that index funds are “permanent capital,” but this argument is flawed. The underlying investors in passive funds have wildly different horizons. And stewardship teams overseeing thousands of companies aren’t inherently better positioned than active managers to divine what is in the long-term interest of any one firm. When the political tides shifted, the big index firms attempted to push proxy-voting responsibility back to their clients, elevating a process known as pass-through voting. This was legally permissible but only partially effective. The structural problem has been growing for years. Passive investing’s greatest strength, broad ownership, also produced its greatest flaw, concentration of governance authority far from actively engaged investors. Much criticism has been directed not at the concentrated index voters but at proxy voting advisers. These firms don’t themselves vote shares, but have gotten all the blame. Yet if they went out of business tomorrow, voting power would still become even more concentrated as the business of index funds grows. My firm, VanEck, speaks not from a position of convenience. While we have actively managed funds for more than 70 years and actively—even publicly—engaged with portfolio companies, more than 80% of our assets under management are in passive products. A mirror-voting cap would apply to us as much as any other firm. But a stable, credible, decentralized governance framework is more important than any marginal influence we might surrender. Mirror voting is simple and proven, and it doesn’t require dismantling the index-fund industry or imposing complex new regulations. It simply aligns governance with economic reality: Active investors who choose what to own should have primary oversight; passive investors who are required to own everything shouldn’t dominate corporate decision-making by default. The industry can adopt mirror voting more wholeheartedly, or policymakers could continue to take action through regulation and litigation. The success of passive investing need not come at the cost of the health of American capitalism. It only requires us to be honest about the limits of a system that was never designed to bear this much weight—and to implement the straightforward fix already available. Mr. van Eck is CEO of VanEck Funds, an investment firm. Copyright ©2025 Dow Jones & Company, Inc. All Rights Reserved. Hide Conversation (24) Conversation 24 Comments F Black 15 hours ago While I'm not informed enough about the potential pitfalls of this approach, it seems like a better solution than having Larry Fink and his ilk exert their politically correct woke ideas aligned with the leftists on American businesses. Even Vanguard fell under the sway of the left's madness on ESG policies. Reply 12 Share Doug Barr 13 hours ago As a Index fund owner, I think mirror voting sounds like a step in the right direction. But I would go further and say the individual owner should be allowed to specify if their shares vote this way. If I am a Vanguard client, maybe I like the way Vanguard has voted my shares, so I should be able to keep that, or have mirror voting, or if I am liberal or conservative, maybe I should be able to assign my voting rights to a outside entity. Reply 5 Share Philip Hoff 10 hours ago Totally agree. However, following all the votes in the 500+ companies might be a bit much. I'd like to be able to delegate a proxy to vote on my behalf. Since I'm pretty libertarian and primarily concerned with profitability, I'd donate my voting rights to an organization that aligns with my values. Someone who is more progressive could donate their rights to an ESG organization if that is more important to them than profitability. Reply 2 Share 1 reply Show 1 more reply Bryce Birdsong 13 hours ago This makes 100% sense to me and should be a top Republican priority before the midterms. Reply 4 Share Michael Mendle 1 day ago Spot on! Reply 4 Share IAN C MADSEN 1 day ago I had not heard of 'mirror voting'. Very sensible; I hope it happens. Something has to be done to hold boards accountable. CEO compensation has little relation to corporate performance. Reply 3 Share David Harris 9 hours ago Friendly reminder that the leftists in the democratic party knew that the ESG/DEI initiatives were so unpopular (and most likely illegal) that they never could be instituted politically, so they implemented them through the back door. They threatened the large index fund managers to vote as they wished, or they'd face political retribution. Time to take all of their discretionary voting away. Reply 2 Share KIPP E MEYERS 4 hours ago "They threatened the large index fund managers to vote as they wished, or they'd face political retribution." Or more important to large index fund managers and their spouses they'd be shunned from liberal Manhattan society. Reply Share Philip Hoff 10 hours ago I like this approach, but why should index fund managers get even 10%? Why not go to 100% mirror voting? Reply 2 Share justin hopkins 11 hours ago Why should institutions even get to vote 10% of the shares that they don't own? Just mirror vote everything or let the actual owners decide. Reply 2 Share Harry M 21 hours ago Individual investors, and most money managers for that matter, are wagering on management's ability. If you don't like the wager your best vote is selling. Reply 1 Share Jim Verdonik 22 hours ago This mirror voting proposal basically says that some shareholders can determine how other shareholders vote. NO THANK YOU. Every owner should determine how all their shares are voted. Reply 1 Share DENISE BOAL 21 hours ago Then, everyone should buy the individual stocks instead of piggybacking on a fund manager. Reply 3 Share Paul Davner 28 minutes ago Owners by default like passive funds shouldn't be voting at all - voting should be left to investors who know why they have an ownership stake in a company. Reply Share Mark Van Baalen 2 hours ago Agree with the problem, not sure if the proposed solution is wise, or not. Reply Share Brian H 4 hours ago My yeoman's solution is that equities held in passive or index funds have no associated voting power while those held in actively managed funds have voting power. Unsure if this can operate around the basic tenet of "the owner of the share get's to vote the share" but I believe only those who are actively engaged with the management of the company should be voting, which excludes passive investors. Reply Share edward hilton 5 hours ago camel's nose under the tent!................how do you prevent an activist firm from amassing a sufficient position to trigger mirror voting according to their aims..............whether malign or neutral?. Reply Share William Benton 5 hours ago I wasn't aware of this being an option, but it makes 100% sense. Hat tip to Van Eck to shining a light on this. It's a problem that has outsized influence on companies and their boards. I hope it gets addressed, they have my vote. Reply Share Paul Mottola 7 hours ago Mirror voting would amplify the votes of engaged investors. This would make it easier for activist investors to disrupt companies. Do we want that? I’m asking seriously; looking for opinions. Reply Share Warren H 7 hours ago In the past i advocated that passive investors should abstain from voting but this causes a quorum and/or lack of clear majority problem. Mirror voting achieves the same result but makes sure enough shares are voted to move positions forward. This is a step in the right direction. Reply Share Dave Nadig 9 hours ago While I think Pass Through voting should always be on the table (an investor should be ABLE to reclaim their power!) this is a reasonable solution as a backstop. Reply Share Sat, 13 Dec 2025 11:53:33 -0800 Feic from private IP Reply #16045141 Many 401ks dont have the option of managed funds in their menus. There only target date funds that have preset allocations into passive bond and stocks funds. Remember when GWBush wanted SS to go into the stock market? The funds would have gone into more passive!!!!!!Replies require login.
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