Welcome to the era of asset manager capitalism
This accelerated concentration coincides with the unprecedented increase in fully diversified “universal” portfolios, in which managers are invested in assets from all geographies, sectors and asset classes. Additionally, industry-dominating players are largely ‘passive’ investors, meaning their portfolios are built on the basis of predetermined indices, often from third-party vendors, rather than the discretion of disjointed portfolio managers. seeking to “beat the market”. This high degree of indexation means that investors cannot, as a rule, withdraw from investments in individual companies, whether to punish unwanted behavior or otherwise.
In light of these calm but profound changes, the UK has entered a new era: the era of “Capitalism of asset managers”. Unlike the image of the activist shareholder, on which the dominant “shareholder primacy” regime of corporate governance is often justified, asset manager capitalism is defined by structural deterrence for shareholders. to be concerned about the actions and performance of the companies in their portfolio. .
Instead, managers are motivated by increasing their asset pool and market share, even going so far as to offer no-fee funds in an attempt to capture a larger share of the market. Although financial companies offering products for free seem unthinkable, the move – led by the American giant Fidelity – is completely in accordance with the fundamental drive of these entities: to accumulate, to accumulate, to accumulate.
The result is that we are sleepwalking in an economy in which a handful of extremely powerful players not only have decisive influence over the actions of the companies in which they own shares – they also have tremendous power over it. economy as a whole.
In theory, the position of companies like BlackRock as long-term universal shareholders with sizable stakes throughout the economy should make them particularly alert to systemic risks such as the climate crisis or widening inequality. Yet an independent analysis of ShareAction, Influence card, Sarasin & Partners, Friends of the Earth and others have found time and time again that the biggest asset managers do not put their full weight behind these issues and have consistently voted against or abstained on shareholder resolutions on everything from deforestation to chain to supply to climate objectives, including exorbitant salaries for managers.
At the same time, the pressure on companies to ‘disgorging the money’ to shareholders has made it possible to reorient companies towards the priority given to these interests over all other stakeholders, whether social or environmental. In 2020, aggregate dividend payouts by FTSE350 companies represented around 90% of pre-tax profits, although around 80 companies did not pay dividends in the pandemic year. This reflects more than two decades of upward drift in payments to shareholders – increasingly paid with record levels of corporate debt. During the same period, productive investment fell sharply.
Overall, this type of extractive behavior undermines efforts to build an inclusive, low-carbon economic future by reducing labor’s share of profits and reducing the investments needed in decarbonization or changes in energy chains. unsustainable and unfair supply. The rise of asset manager capitalism therefore marks a new era of corporate governance that has important implications for how our economy works – and for whose benefit.
However, efforts to overcome the extractive and unequal nature of the corporate economy too often get stuck in the past, striving to dismantle a structure that no longer exists. Today, comparatively little productive capital is lifted in the stock market, and the rise of indexation means that capital is no longer “efficiently” allocated by the invisible hand of aggregate shareholder behavior. We must therefore ask the question: what are shareholders for?
The company is a site of immense productive and organizational capacity, but its extraordinary privileges – as well as those granted to shareholders – are public. They are neither fixed nor natural. In the future, the enterprise must be reconquered as a social institution that supports generative enterprise and collective effort. In the context of the climate crisis, deep inequalities and increasingly entrenched exploitation in global supply chains, this need is urgent.
We can start by taking into account the role and influence of BlackRock and other asset managers in our economy, and devising strategies to challenge and democratize corporate power.