Replies to post #378640 on Tornado Alley (PROG)

[DesertDrifter]

You think you are getting paid by the word again? Flood the zone, and make it so that no one even bothers to take the time to debunk your junk.

[wEaReLeGiOn]

Any reason all of your intrepid links come from such house-hold name brand websites?

Do you know that anyone can open a website?

Have you heard the expression (okay, not on those websites, or likely most you frequent)

"Consider the source"?

Some special kind of stoopid coming from you..

[blackhawks]

Holy f*ck, do you read for comprehension ANYTHING that you post?

Could Cicero have possibly more accurately described Trump's presidency and most particularly his words and actions on 1/6?

“A nation can survive its fools, and even the ambitious. But it cannot survive treason from within. An enemy at the gates is less formidable, for he is known and carries his banner openly. But the traitor moves amongst those within the gate freely, his sly whispers rustling through all the alleys, heard in the very halls of government itself. For the traitor appears not a traitor; he speaks in accents familiar to his victims, and he wears their face and their arguments, he appeals to the baseness that lies deep in the hearts of all men. He rots the soul of a nation, he works secretly and unknown in the night to undermine the pillars of the city, he infects the body politic so that it can no longer resist. A murderer is less to fear.”

-Marcus Tullius Cicero

[fuagf]

Da Kine 17, So you got away with more than one of those today. Again thanks to the earlier replies. Don't try them on tomorrow.

[fuagf]

Da Kine 17, Why leave out the third? And while your looking at the concentration of economic power could be a useful venture, why look at everything from within a conspiracy framework? First a comment on your:

"“None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. They feed them on falsehoods till wrong looks like right in their eyes.”
-Johann von Goethe"

I think it's arguable that Goethe there could be talking about you more than others not so sunk in conspiracy depths as you are. Consider who is more free. You, or someone who is not so restricted in their look at things larger than themselves. You, or one who sees more than conspiracy in all they see around them.

You, or someone who could read the law review article below with more of an open mind than you are able to.

Who has more freedom of thought. You, or the author of this article?

See how you feel while reading this small introductory part of it. Oh, and as mentioned above, why did your conspiracy works leave out the third mentioned here.

So to the article - In the posting i've omitted all reference sections on each page. And page references themselves.

Index Fund Enforcement

Alexander I. Platt

Corporate America today is astonishingly beholden to three large financial institutions: BlackRock, Vanguard, and State Street Global Advisors. As investors have moved their money into low-cost, highly diversified investment vehicles known as index funds, the so-called “Big Three” institutional fund managers that dominate the index fund industry have grown rapidly and accumulated unprecedented economic power and influence. For instance, these three institutions now vote one out of every four shares of stock issued by large U.S. companies. Policymakers and scholars have begun to sound the alarm about this concentration of corporate ownership, and have proposed reforms to reduce or eliminate these institutions’ influence over portfolio companies.

But concentrated power has its benefits, too. In this Article, I argue that the remarkable size, permanence, and cross-market scope of the Big Three’s ownership stakes gives them the capacity and, in some cases, the incentive to punish and deter fraud and misconduct by portfolio companies. Corporate governance and securities regulation scholars have argued that these institutions have generally overriding incentives to refrain from meaningful corporate stewardship, but the facts on the ground tell a somewhat different story. Drawing on a comprehensive review of the Big Three’s enforcement activities and interviews with key decision-makers for these institutions, I show how they have been using engagement, voting, and

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litigation to discipline culpable companies and managers. I also identify the “pro-enforcement” incentives that explain these actions.

Policymakers and scholars are now engaging in a heated debate over indexation and the future of the Big Three. To date, however, participants have overlooked the potentially beneficial role these institutions may play in the enforcement ecosystem. This Article corrects this oversight, bringing Index Fund Enforcement into focus. Policymakers should embrace regulatory reforms designed to enhance Index Fund Enforcement, not weaken it.

TABLE OF CONTENTS

[...]

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INTRODUCTION

Three financial institutions now vote 25% of the stock in the largest U.S. public companies.1 The figure may soon be closer to 40%.2Vanguard, BlackRock, and State Street Global Advisors (“SSGA”) — the so-called “Big Three” — dominate the market for the low-cost, highly diversified investment vehicles known as “index funds.” As more investors put their savings into these vehicles, these institutions have accumulated an unprecedented level of economic power. Policymakers and scholars have been working urgently to understand the social

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impact of this consolidation of ownership3 and what to do about it — up to and including breaking up the industry.4

To date, however, this debate has overlooked an area where the Big Three’s rise may have a particularly significant effect: the corporate enforcement ecosystem.5 On the one hand, the problem of corporate fraud might be ameliorated by a dramatic consolidation of shareholder power. The remarkable size, cross-market scope, and permanence of the Big Three’s ownership stakes could give them a unique capacity to overcome collective action problems and impose meaningful accountability and deterrence.6 On the other hand, the Big Three may

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use their considerable power and influence to insulate managers and companies from accountability for misconduct. If so, their rise may dilute existing reputational enforcement mechanisms and undermine general deterrence. According to some leading corporate governance scholars, the incentives of the Big Three seem to point toward the latter, darker possibility. Proponents of what I call the “Passivity Thesis” argue that index fund managers have generally overriding incentives to refrain from meaningful corporate “stewardship” — i.e., actions to influence and enhance the value of individual portfolio companies.7 These scholars argue that because index managers are compensated with fees equal to a very low percentage of assets under management, they have little to gain from governance activities that enhance the value of individual portfolio companies.8 And, they argue, spending money on governance might weaken a fund’s competitive position because the benefits of the activity would be shared by all investors in the firm including rival index funds, whose investors would not be burdened with the additional incurred costs.9This Passivity Thesis has been highly influential.10 But it is not the whole story.

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Consider some facts on the ground. In 2018, one of the Big Three pursued at least eight lawsuits against portfolio companies in foreign jurisdictions.11 Vanguard has recovered well over one hundred million dollars for its investors in the last two years through non-class securities fraud litigation.12 BlackRock has similarly pursued a slate of litigation on behalf of its investors, including a series of cases targeting misconduct related to residential mortgage-backed securities and the financial crisis leading to the recovery of billions of dollars.13 After the disclosure of Wells Fargo’s (“Wells”) fraudulent practice of creating fake accounts, the Big Three (each among the largest owners of the bank’s stock) all voted against members of the bank’s board of directors, causing several to step down from leadership roles.14 Similarly, after reports that Exxon-Mobil suppressed critical information regarding the threat posed by climate change, each of the Big Three voted against several Exxon directors and supported a shareholder proposal that required the company to make enhanced climate risk disclosures going forward.15 And after the disclosure of Volkswagen’s emissions cheating practice, all three institutions similarly voted against multiple members of the company’s supervisory board (including the chair) and signed on to shareholder litigation against the company pending in Germany.16

The Passivity Thesis treats these enforcement-based stewardship activities17 by the Big Three as anomalies — unexplained departures from the generally overriding incentives to remain passive and defer to management. This Article takes a different approach.

I argue that, in the wake of certain corporate scandals, the Big Three’s general incentives to remain passive are overcome by countervailing “pro-enforcement” incentives.18 Using hand-collected data from class action filings and U.S. Securities and Exchange Commission (“SEC”) disclosures, I demonstrate that non-class litigation against portfolio

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companies gives index funds a way to achieve a competitive advantage over otherwise identical funds managed by rivals.19 I also show that, for the Big Three, responding to corporate misconduct is both less costly and potentially more valuable than other forms of individualized corporate stewardship. Because of their size and salience, a small number of well-chosen enforcement-based stewardship activities by these institutions may have an outsize effect — on returns, on industry or market-wide conduct, and on the public profile of the institution.20

To test these “pro-enforcement” incentives, I present a global review of the Big Three’s enforcement activities in litigation, voting, engagement, and guidance — including several original hand-collected data sets, as well as insights from conversations with inside and outside counsel for the Big Three. This evidence confirms that in an important minority of cases, the Big Three do take action to hold individual companies and their managers accountable for corporate fraud and misconduct and that these actions can have a significant impact.21 For instance, the Big Three have pursued a moderate slate of non-class litigation against portfolio companies,22 have used their substantial power to vote against culpable directors in the wake of high-profile corporate misconduct,23 and have regularly engaged with portfolio companies in the aftermath of corporate scandals to gather information and demand action.24

These findings provide a reason to hesitate before embracing proposals from a wide range of commentators to restrict the Big Three’s ability to influence portfolio companies.25 As policymakers weigh these proposals, they should not overlook the important social benefit of punishing and deterring corporate fraud and misconduct that the Big Three may provide through their influence over portfolio firms.

However, the evidence I present below regarding the Big Three’s enforcement record also indicates that the Big Three are not yet living

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up to their full enforcement potential. While the Big Three have pursued a moderate slate of non-class litigation, they have done so predominantly against non-U.S. firms.26 Similarly, while the Big Three have regularly voted against culpable directors in the wake of major corporate scandals, they have often continued to support that same director at other companies where he or she serves, diluting the deterrent force of the “no” vote.27 And the Big Three have failed to promulgate any guidance regarding how they exercise their enforcement powers — i.e., when they will litigate against a portfolio firm, or when they will vote against a director for his or her complicity in corporate misconduct.28

At least some of this enforcement shortfall appears to be attributable to flaws in the regulatory regime governing the Big Three, rather than to fundamental financial incentives associated with indexed investing. For instance, while mutual funds have extensive disclosure requirements with regard to proxy voting, they have no parallel obligations in the domain of litigation and therefore are free to make these decisions in a non-transparent and potentially conflicted manner.29 As policymakers weigh new index fund regulation, they should consider reforms to enhance index fund enforcement, rather than weaken it.30

This Article makes several contributions. First, it provides a new limitation on the Passivity Thesis — i.e., the influential view among corporate governance scholars that the Big Three have overriding incentives to refrain from value-enhancing corporate stewardship. I do not dispute that these incentives are powerful or even that they predominate in the majority of cases. Rather, I suggest that there is an important minority of cases involving fraud or misconduct by portfolio companies in which the Big Three’s incentives to passivity are overwhelmed by countervailing ones. And because of the size and salience of these institutions, even a small number of actions may have a significant impact.

This Article is the first to analyze these institutions’ incentives and actions in the specific context of enforcement. However, I join a growing chorus of scholars who have recently been pushing back on the

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Passivity Thesis.31 My analysis contributes new insights to this active debate, including the following:

(i) Prior efforts have not mapped the Big Three’s incentives to use ex post methods like litigation and voting “no” in the aftermath of a corporate scandal to hold companies and managers accountable.32 I show that such reactive enforcement-based stewardship pursued in the wake of a corporate crisis has some distinct advantages that have been overlooked.33

(ii) My analysis shows that the Big Three have some incentive to pursue governance at the individual firm level. Most of the challengers to the Passivity Thesis have conceded that the Big Three have no incentive to engage on a firm-specific level and instead have argued that they may have a powerful impact by engaging on industry-wide or market-wide governance activities.34 I do not make the same concession here

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(iii) Many critics have challenged the Passivity Thesis’ focus on fund-level incentives, given that the Big Three have highly centralized governance operations that make decisions on behalf of many family funds.36 I embrace these points, but I also provide a directresponse to the Passivity Thesis on its own terms, demonstrating that an individual index fund has a concrete financial incentive to pursue certain forms of enforcement-based stewardship.37

(iv) Unlike some critics of the Passivity Thesis, I do not dispute the fundamental validity of their analysis.38 To the contrary, I assume here that the Passivity Thesis is correct that in the majority of cases the Big Three will have overriding incentives to remain passive and deferential to management. I argue, however, that in a small but important minority of cases following major corporate scandals, the Big Three have strong countervailing incentives to hold portfolio companies accountable.

Second, this Article contributes to the literature on the future of private securities enforcement. In the shadow of various looming restrictions on the securities class action, commentators have turned to consider how various financial institutions may fill the resulting enforcement gap.39 This Article suggests that, with some policy changes, the Big Three may be in a position to play an important role in this arena.

Third, I respond to the mounting research across various disciplines outlining various social costs associated with the rise of indexation and the Big Three.40 I take no position on these findings, but rather draw attention to an overlooked social benefit these institutions have the

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potential to provide — strengthened accountability and deterrence of corporate misconduct.41 As policymakers confront problems associated with indexation and concentration of ownership, they should do so based on a complete picture of the relevant costs and benefits — including the potential benefits provided by Index Fund Enforcement.

Fourth, I provide some indirect support for those who have suggested that the Big Three (and other “common owners”) are driving firms toward anticompetitive conduct.42 Some regulators and scholars have challenged these antitrust critics by claiming that the Big Three’s overriding incentives to remain passive would cause them to refrain from taking any actions to promote anticompetitive conduct by portfolio companies.43 The theory and evidence presented here refutes that argument, showing that, in an important minority of cases, the Big Three can and do take actions to influence the behavior of portfolio companies — including actions at the individual firm level.44

This Article proceeds in five parts. Part I reviews the rise of index funds and the Big Three. Part II surveys four tools that the Big Three can use to punish and deter corporate fraud: litigation, voting, engagement, and guidance. Part III challenges the Passivity Thesis by offering an account of the “pro-enforcement” incentives these institutions face following misconduct by portfolio companies, and then uses these incentives to form a prediction about the kinds of enforcement activities that the Big Three will engage in. Part IV provides evidence regarding the enforcement activities of the Big Three. It presents and analyzes several hand-collected datasets and key anecdotes tracking the Big Three’s litigation, voting, and engagement practices following corporate fraud and misconduct. Part V reviews the implications for debates about common ownership and index fund reform, and then proposes some disclosure and litigation reforms to enhance the Big Three’s enforcement activities

Much much much more - https://lawreview.law.ucdavis.edu/issues/53/3/53-3_Platt.pdf