From Universal Owners to Owners of the Universe? How the Big Three are Reshaping Corporate Governance

Abstract

Research Question/Issue: The prominent ownership position of the Big Three asset management firms (i.e., BlackRock, Vanguard, and State Street Global Advisors) in many leading companies around the world has sparked a lively debate regarding whether their concentration of power is beneficial or detrimental for corporate governance (CG). We conduct a comprehensive literature review of extant empirical research examining the link between the Big Three and CG dimensions. Research Findings/Insights: We provide novel evidence on the Big Three's global positions and present a systematic review of empirical research on their impact on four key CG dimensions: board structure, financial reporting and disclosure, corporate social responsibility (CSR), and external CG mechanisms. Our analysis reveals nuanced influences varying across specific CG dimensions. Theoretical/Academic Implications: We develop a conceptual framework which articulates the main arguments on the Big Three's stewardship role, building on two distinct characteristics that define them: their investment style and their portfolio size and coverage. Exploring the large passive funds' distinct incentives and the implications of substantial common ownership, our framework underscores varied motivations and new channels to shape CG. We develop an agenda for future research, building on the idea that the Big Three do not work in isolation, independently of other investors, governance agents or the institutional environment. Practitioner/Policy Implications: Understanding the Big Three's influence on various CG dimensions provides novel insights on the broader debate about their influence and allows for targeted and effective policymaking.

Keywords: Big Three, Asset Management Firms, Passive Index Funds, Common Ownership, Corporate Governance