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Lucian A. Bebchuk & Scott Hirst, The Misguided Attack on Common Ownership (Dec. 11, 2018).


Abstract: This academic presentation is based on the slides we prepared for delivery by one of us at the Federal Trade Commission hearing on Competition and Consumer Protection in the 21st Century on December 6, 2018, which focused on common ownership. The slides discuss the implications of our research work for the common ownership debate. The research work whose implications we consider includes Bebchuk, Cohen, and Hirst, The Agency Problems of Institutional Investors (2017) (https://papers.ssrn.com/abstract=2982617) and Bebchuk and Hirst, Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy (2018) (https://papers.ssrn.com/abstract=3282794). We argue that the attack on common ownership is misguided.The claims of common ownership critics, we argue, fail to take into account how the agency problems of investment fund managers provide them with incentives to under-invest in stewardship and to be deferential toward the corporate managers of portfolio companies. Given these problems, policymakers should be primarily concerned that investment fund managers engage too little and not that they engage too much. The measures advocated by common ownership critics are not merely unnecessary but would be counterproductive; they could well discourage investment fund managers from stewardship activities that should be encouraged.