The Stigler Center for the Study of the Economy and the State hosted with the Rustandy Center for Social Sector Innovation, in partnership with the Financial Times, a virtual event discussing shareholder democracy with Lisa Fairfax, Alex Thaler and Luigi Zingales. The following is a transcript of the event.

Chris Wheat

Hi, good morning from Chicago. My name is Chris Wheat. I’m the Executive Director of the Stigler Center for the Study of the Economy and the State at the University of Chicago Booth School of Business. Today, we’re happy to host the second event at our Unpacking ESG series which investigates the ways ESG is, and is not, and could be a force for social and environmental impact across the world.

Our conversation today will focus on the risks and opportunities of a more democratized approach to shareholder engagement and we’re delighted to welcome our speakers, Lisa Fairfax, Alex Thaler, and Luigi Zingales, moderated by Simon Mundy. The Unpacking ESG series features global thought leaders from the University of Chicago and beyond, who share their expert insights on some of the timeless ESG topics. It’s cosponsored with our friends at the Rustandy Center for Social Sector Innovation at Chicago Booth, alongside our media partner, the Financial Times. And we’re particularly thankful to Simon Mundy and his team at Moral Money for their work on this series.

By way of background, the Stigler Center is dedicated to understanding the issues at the intersection of politics and the economy. And we’re an intellectual destination for research on regulatory capture, crony capitalism, and various forms of subversion of competition by special interest groups. Our friends at the Rustandy Center for Social Innovation have celebrated ten years of social impact at Chicago Booth for people committed to tackling complex social and environmental problems. By promoting innovation, advancing faculty driven social impact research, launching social ventures, and convening thought leaders and practitioners, the center develops the people and practices that can accelerate social change. And Financial Times Moral Money is the destination for news and analysis in the role of business and finance in the drive for a fairer, cleaner, and more sustainable world economy. Their newsletter offers sharp coverage and commentary on the debate over the purpose of business and of capitalism itself, and is a must read for myself three times a week. We encourage you to check out the Stigler Center’s publication,, subscribe to our Capitalisn’t podcast, as well as the Rustandy Center’s monthly newsletter, and FTS Moral Money newsletter which publishes three times a week. The relevant links can be seen in the chat function at the bottom of your screen.

Before we begin, please note that we are on the record and we will post this event video to YouTube later. If you have questions for the speakers, you’re welcome to begin submitting them via the q&a icon at the bottom of your screens and we’ll try to get to as many as possible towards the end. And as usual, the views expressed by the guests on this webinar are their own; they are not the views of the organizers or the University of Chicago. I do want to highlight the next event in the Unpacking ESG series which will be on June 21, which will discuss the politicization of ESG. Please check the Series website for more details and to register for that discussion. And now please allow me to very briefly introduce our speakers. Their full bios can be found on the event page.

Lisa Fairfax is a Presidential Professor and Co-Director of the Institute for Law and Economics at the University of Pennsylvania. Her research focuses on corporate and board governance, among others. And her book, Shareholder Democracy: A Primer on Shareholder Activism and Participation, is a seminal work on issues of shareholder democracy.

Alex Thaler is a software engineer and former corporate attorney who is a cofounder of Iconik, a platform that provides personalized automated shareholder voting technology with the aim of empowering investor voice.

Luigi Zingales is the Robert C. McCormick Distinguished Service Professor of Entrepreneurship and Finance, the faculty director of the Stigler Center, and a cohost of the center’s Capitalisn’t podcasts. His research interests span from corporate governance to financial development and from the political economy to the economic effects of culture, among others.

Last but not least is today’s moderator, Simon Mundy. Simon is a Moral Money editor at the Financial Times, covering sustainability issues for the award winning Moral Money platform across the wider FT.

And with that, I turn it over to Simon. Simon, thank you so much.

Simon Mundy

Thanks so much, Chris. And hello, everyone. Thank you for joining us today. This is a really, really interesting subject for us. It’s quite core to what we cover at the FT and Moral Money in particular. So it’s brilliant to be able to partner with our friends in Chicago on this series of podcasts, of webinars.

This particular one, focusing on shareholder democracy, is inspired in part by something that Larry Fink, the chief executive of BlackRock, put in a letter back in November, when he was talking about new systems that BlackRock has been rolling out to enable individual investors, shareholders, whether they be institutional or, in the future, increasingly perhaps retail investors as well, to vote in shareholder votes using the shares that they own. He said, “This revolution in shareholder democracy will take years to be fully realized. But it is one that, if executed correctly, can strengthen the very foundations of capitalism.” So pretty big words from Mr. Fink. But two of those words in particular, “shareholder democracy,” is what we’re going to be focusing on today. And this term is one that I’m sure we’ve all heard many times. It’s a term that I believe has been in use for getting on a hundred years now. But when it’s used, it’s often used in subtly different ways from one person to another.

So I’d like to start this conversation by asking each of the panelists to explain what they mean when they think of shareholder democracy, what they think of when they hear those words. And Lisa, you literally wrote the book on shareholder democracy. So if we could start with you, as concisely as you can express it, what does shareholder democracy mean to you?


Lisa Fairfax

Thank you so much for having me. It’s great to be a part of this conversation.

Shareholder democracy, to me, is this idea that we’re allowing shareholders to have greater voice and participation within the corporation, with a particular emphasis on their voting power. And certainly those, I believe, in the US who are interested in promoting shareholder democracy—and I think this is exemplified by Larry Fink’s words—have focused on enhancing shareholders’ ability to effectively exercise their vote, with the idea that when enough shareholders effectively exercise their vote, they will have this ability to both directly and indirectly influence corporate affairs. And they will have vastly increased their ability to participate in the corporate process.

Simon Mundy

That’s brilliant, Lisa. Thank you. And Alex, moving on to you, what do you think? What goes through your head when you had shareholder democracy?


Alex Thaler

Thanks for having me. I’m excited to participate in this panel.

I would dovetail with what Lisa said, just going back to the basics. Shareholder democracy, for me, is the notion that all shareholders have a say in the functioning of corporations and on important issues that might touch subjects beyond just maximizing shareholder value, like monetary, dollar value. When I think about this concept, I think about the idea of concentrating voting power in the hands of, say, fund managers. And the idea of, well, maybe we should spread that around a little bit.

The statistic that sticks in my mind is that 88% of retail shareholders don’t currently vote. So in any healthy, functioning democracy, you would expect broad participation in the system. And so I think we can do a little bit better in our shareholder democracy.

Simon Mundy

And Luigi, to round us off, what does it mean to you?


Luigi Zingales

So, to me, it’s important to stress the fact that we live in a world in which a few large corporations have a disproportionate saying on the quality of the air we breathe, the food we eat, the safety of our means of transportation, and the environment in which our children play. And traditionally, all these decisions have been delegated to a few managers. And now I think people want to be more influential. And they want to be influential as customers. They want to be influential as employees. But also they want to be influential as shareholders. And I think that the idea of shareholder democracy is to involve the shareholders in these decisions.

Simon Mundy

Thanks so much. So that’s got us off to a brilliant start. And it’s a particularly apposite moment to be having this conversation because of the disruptive influence of technology in this space at the moment. And that’s one of the reasons why Larry Fink was getting so excited. Because it’s technology, obviously, that is enabling BlackRock to offer these new services to its clients, and to its investors in its products.

Alex, without asking you to give a pitch for your company, obviously this is a space in which you’re active. And I think Iconik is a really interesting example of how technology is being rolled out by various companies to try to address the challenges that we’ve been talking about. Could you briefly explain to us what your business does, in a nutshell, and how this fits within a wider tide of activity around this space?


Alex Thaler

Sure, sure thing, yeah. I do view us as part of maybe a movement, if you will, of other startups and companies that are working on increasing efficiencies and reducing costs around voting, and helping to facilitate broader engagement through shareholder voting.

Our mission is to use technology to give investors a stronger voice, strengthen corporate governance, and make investing more meaningful for all market participants. I think the notion here really goes back to the difficulties of voting right now. And that some participants have technologies that others don’t. So for example, institutional investors will often have recommendations from proxy advisors, they’ll have advanced technology and platforms that make it much easier to vote. Retail simply does not. And so this really goes back to the notion of rational apathy, that for many investors out there, it is rational to not vote their shares, given the time commitment and cost associated with voting. And so, we really want to reduce those costs and sort of increase the benefits to make this available to all investors.

Simon Mundy

So at the moment, I wonder what the other two panelists think about this really helpful overview there from Alex. Should we be excited about the potential of technology in this space? Because one could argue, “Well, it hasn’t been a lack of technology that’s been holding back shareholder democracy. It’s been the attitudes of various vested interests who don’t particularly want lots of disruption from everyday people in the street, and that’s not going to change.”

Lisa, are you excited about the kind of technology that Alex is talking about?


Lisa Fairfax

I’m always cautiously excited. And let me tell you why.

I do think that we can’t blame the lack of retail participation solely on apathy, that there are technological challenges in the current voting process. And, you know, we talked about, people in the corporate governance space have talked a lot about proxy clumping, and how clunky it is to cast your vote and figure out how to cast your vote through the broker. I won’t get into those gritty details, but I think everyone who understands the system appreciates that it is cumbersome, and that technological interventions can help with that, can make it easier for shareholders to vote. And certainly we have a generation of shareholders, retail shareholders who’ve grown up with technology. And you can imagine, if they’re able to use that technology to vote and participate in the corporate voting process, that that will enhance their ability to engage in shareholder democracy. It’s going to increase their access. I love that Alex talked about this notion that retail shareholders don’t have the same types of resources like proxy advisory forums and other advisors, and technology is breaking those barriers down, allowing them access to platforms and resources that they may need to not only cast their vote, but to cast it in an effective way.

So that’s my optimism.

My caution is, we don’t want to rely too heavily on technology. It is the case that sometimes technology replicates the inequities that we see in broader society. So we want to be very careful of that.

And I also think we do want to be careful about making sure that shareholders are getting the right kind of information. When they’re accessing the technology, they’re doing it in a way that’s most informed. Because we are seeing some data that suggests that a lot of retail shareholders are relying on nontraditional mechanisms for informing themselves about who and how they should vote.

Simon Mundy

Nontraditional mechanisms, such as what?

Lisa Fairfax

Such as “influencers.” Whatever that term means to you.

Simon Mundy

A lot of social media content?

Lisa Fairfax

Yeah, I would say, well, we see commercials of, you know, notable football and baseball stars talking about crypto and other investment things. And we appreciate that that is maybe targeted at investors, and investors may not be able to really fully appreciate where they can, at least, get more information to make an informed decision. I think that should be troubling.

Simon Mundy

Luigi, the sort of concentration of power that you were talking about before, the excessive concentration of power particularly among the top executives of a relatively small number of companies. Do you see the sort of technology that we’re seeing, let’s leave out AI for the moment, we can come on to that later, but the sort of technology that Alex and Larry Fink have been looking at and deploying. Do you see that as a potential means of challenging that concentration of power?


Luigi Zingales

Yeah, I see it as a necessary step to reduce this concentration, as I was describing earlier, the concentration in the corporate world.

But in the financial world it is even worse. Because the combination of what we finance academics told investors, that they should buy indices, and the fact that there are economies of scale in running indexes, has created a situation in which basically three companies control corporate America. And so, one of the reasons why I’ve always been opposed to corporate immunity is because I don’t want too excessive concentration of power, but Larry Fink has almost as much power as Stalin in the Soviet Union. And I think we need to distribute that power by re-empowering the ultimate owners to make the choices.

I think that Alex’s technology is one way to do that. I think there are probably many. But I think we should go in that direction because otherwise there is an excessive concentration in the hands of a few people, which is very dangerous from any point of view.

Simon Mundy

So Alex, how quickly is this growing? You know, you mentioned the very high number of shareholders who currently don’t vote their shares at all. How quickly is that changing? How quickly do you expect it to change? Are we looking at a sort of exponential growth line here? You know, realistically, you’re never going to get 100% of people voting. So what’s your outlook?


Alex Thaler

Yeah, that’s a very good question. I think it depends on a few factors. We saw last year in the Senate an effort to pass a bill that would require BlackRock, State Street, Vanguard, some of the bigger asset managers holding over 1% of a company’s shares to do pass-through voting. So if something like that happens, then we’ll see it very quickly.

I do see market forces pushing asset managers to devolve some of their voting power to investors, because of the political climate currently. We have sort of conservatives and progressives both knocking on their doors, upset with the way they’re voting, and so that’s causing them to be more interested in devolving voting power. And I think that is accelerating, especially in the last year or so.

But like you said, it’s a huge space, there’s a very long tail, so I don’t expect it to all happen within a year or two. It’s a process that will likely unfold over, you know, five to ten years, something like that.

Simon Mundy

Lisa, Alex has mentioned laws and regulations there. Do you think that’s part of the problem? Insofar as there are problems, as you said, with insufficient level of shareholder democracy, or otherwise. Do you think laws and regulations have been the problem? Are there particular laws and regulations you would point to, in particular, legal and regulatory changes that you would be hoping to see?


Lisa Fairfax

I will step back to say that maybe I’m the naysayer on the panel, but I am not as concerned with concentrations of power and certainly not as optimistic about pass-through voting and its impact on shareholder participation. And this goes a little bit against what I just said, around not blaming all of shareholders’ lack of participation on apathy. But by the same token, I think we need to be realistic about what we can expect from shareholders, especially if we think about democracy in parallel to our broader political democracy. And what do we know there? Even in consequential elections, individual people do not vote. So even in consequential corporate elections, you’re going to imagine that we’re going to be well below whatever anyone may think of as an ideal participation rate. And that’s true even if we engage in tremendous efforts to try to bring out the retail vote. And we’ve seen that with proxy contests where companies will, you know, Procter and Gamble spent hundreds of thousands of dollars trying to get their retail shareholders to participate and did not, I think, get nearly the results they thought with those efforts.

So I do think that it is true that retail shareholders may not vote. I think that the collective action problem is real. And I think that, in many cases, retail shareholders are relying, when they invest through these institutions, on the institutional expertise. And that may be some of the reason why they’re not voting. And so, if we allow pass-through voting, especially pass-through all the way to retail shareholders, we may go back to the situation we saw before, which was not as much voting as we would hope.

In many ways, the reason why we’re seeing so much outsized influence by these large institutions is because they have overcome the collective action problem. This is what we hoped for when we had so much institutional shareholder ownership. And now we’re concerned because they’re actually exercising that ownership. And I think we’re concerned, in particular, because it turns out that when you allow shareholders to participate, you can’t control what they want to participate around. And now we’re seeing the shareholders may be interested in issues that we hadn’t anticipated. Some of us may like it. I won’t speak for some people on the panel, I’ll speak for myself. I’m happy with some of the issues that they’re pushing around climate and social issues and diversity because I think those are really important issues. Other people are not. I’m less happy when we get institutions that focus on short-term profits at the expense of other important long-term issues. But that is what you get when you get all shareholders participating.

And I think before we start trying to fix the participation that’s happening now, we need to kind of figure out what is actually, quote unquote, wrong. So I do, to answer your question, I think shareholders have done a lot to break down barriers, right? Majority voting is now the norm. Staggered boards are now almost defunct, especially in large companies. We have proxy access, we have the universal ballot, we have the elimination of supermajority voting. All of these governance changes around voting have unleashed shareholders’ ability to further participate, whether or not you like it or not.

And I could say, when I started, when huge shareholders were talking about proxy access as the holy grail, they were talking about as if it would never come. And now it’s here. And I think now that it’s here, we need to take a breath before we start trying rollbacks.

Simon Mundy

So you’ve raised the million dollar question, or hundred trillion dollar question perhaps! Which is, could this potentially backfire?

I think a lot of people would agree with Luigi that there is an excessive concentration of power in an astonishingly small number of ultra-massive asset management companies. But BlackRock, for example, has a stewardship team that I’m sure does not do a perfect job, but they seem to work pretty hard, and their stated purpose is to hold management accountable.

Luigi, is there a possibility that if we devolve more power to individual shareholders, pass-through voting becomes the norm, and that effectively bypasses to a large extent those shareholder engagement teams, that you might have returned investors or other investors with the right to vote that they don’t exercise? And that could actually mean less management accountability?


Luigi Zingales

I am more optimistic.

I think that, historically, the SEC has blocked, in every form or shape, shareholder democracy. If you read Lisa’s book, you’ll see that the SEC has been on the wrong side of history from 1950 to today: When investors in Greyhound wanted to desegregate buses, they prevented the proposition to go on the ballot. When the investors of Dow Chemical wanted to prohibit Dow Chemical to sell the Agent Orange due to the US government using it against human beings, it was blocked. When the shareholders of Cracker Barrel wanted to add more equality on gender and sexual preference issues, the SEC initially blocked them. And when Trinity Church wanted to block Walmart from selling machine guns in department stores and outlets throughout America, the SEC blocked it. So I think that the SEC has been the biggest obstacle to shareholder democracy that you could imagine. And then we are surprised that there is shareholder apathy? Of course! If you cannot vote on anything important, why vote at all?

In a sense, Lisa is absolutely right that we should delegate issues of management to management. But there are issues of values that cannot be delegated to management because management is not appointed to represent us from the point of view of values.

And so if the question is, “Are you prepared to give up some profits in order not to sell machine guns in every department store in the country?” I think that a lot of investors would say yes. And I don’t know why the SEC is preventing investors to express their opinion. And I think that, as we get more into the habit of having this discussion in corporate America, I think that voting will become, shareholders will become more engaged.

I think that there are a lot of ways to reduce the cost of voting through, for example, through guidelines. And I can say, exactly the same way in which I don’t have to vote on every single proposal in Parliament but I have some representatives that vote for me, I can instruct my mutual fund, maybe using Alex’s tools, to say, “Look, I want to vote on this type of proposal ‘Yes’, and on this other ‘No’.” And I think that’s very simple, and can really lead to empowerment of the shareholders.

Simon Mundy

Alex, that’s quite a typically provocative point from Luigi, about the SEC having been on the wrong side of history repeatedly. Does that seem to be the case in this instance? When it comes to the sorts of things that you’re focused on, is it fair to say that the restrictive is really pretty restrictive in this case, and that the regulator hasn’t been fast-moving enough?


Alex Thaler

Maybe agree with some of that, and reserve my judgments on the remainder. I would say that we’re probably in a gray area right now when it comes down to the details of how these tools might be implemented.

I think Lisa brought up a good point about, “Alright, well, if you do pass-through voting, what if people just don’t vote?” I think that’s a legitimate concern. But we now have tools at our disposal where you can really help automate the process, and automate it in a way that’s thoughtful and that actually reflects the values of individual investors. And that just simply wasn’t available years ago. So I am a little more optimistic that if you do pass-through voting, that you get the right results.

And I just want to point out that the concentration of power that you see in this space, you know, if we saw that in the political context, that would be almost obscene, right? And unacceptable. But somehow we tolerate it in the corporate context. So I do see a huge need to break that apart. Inevitably when you get a concentration of power, there’s going to be a misalignment between the folks exercising that power and the rest of society. And I think we’re seeing that play out right now with the big asset managers. They’re under the gun from conservative groups and progressive groups at the same time over the same votes. There’s simply no way for them to win because there’s this misalignment. And so what that’s signaling to me is, we really do need a way to devolve a measure of power down to the beneficial owners.

Simon Mundy

Do you guys think that BlackRock, actually, would really like that? That they’re really uncomfortable with the position that they’re in? And obviously, you know, I’m not asking you to psychoanalyze Larry Fink, but does it stand to reason that they really have an incentive to just try and get this target off their back? To just try and delegate or return as much of that voting power as possible to the ultimate asset owners, and just get on with earning their fees?

Lisa, do you think it makes sense that, really, it’s not really good business for BlackRock to have so much power, so much economic power, in terms of shareholder voting power?


Lisa Fairfax

Yeah, I mean, I can’t get into Larry Fink’s or Vanguard’s or any of their heads. But I can imagine they’re clearly under the gun. The last statement, you know, typically when you see statements from BlackRock, they use a lot of ESG. It’s sprinkled liberally throughout. And I feel like the last couple of statements, there’s been a pullback. They feel like they’re saying the same thing but trying not to use the same language, to try to tone down their… You know? So I can imagine that there is some desire on their part to push the responsibility down the line. And some people may view that as a good thing. And I, on the one hand, clearly don’t disagree with this idea that shareholders, including retail shareholders, should have the opportunity to participate and don’t agree with the idea that they should be able to participate and align with their values and shareholders. You can do what you want, and certainly that includes—and has always included, in my view—voting in alignment with your values and beliefs.

Having said that, I think it is no surprise that BlackRock, State Street, Vanguard are getting so much pushback, just as they’re getting so much traction around pushing companies in these really important ways around climate issues and social equity issues and all of these issues that people are naming as political. But many of these institutions are saying, “Look, these things make sense to us from a value proposition. These things make sense to us in terms of the long-term health and sustainability of the company.” Certainly the institutional shareholders have been saying that. And if we take them at face value, they believe that it’s important to push around these issues. And I think it’s no surprise that as soon as they’ve gotten real traction, there’s been this real blowback in ways I think that could undermine, not the institution’s power, that’s going to exist, but the institution’s ability to wield that power around these really important issues and values that Luigi was talking about. I think that we have to make sure we acknowledge that fact. What is happening here may be a pushback on the underlying issue, not the concern about power, especially because, to date, a lot of the pass-through has been to other institutions that have the same kind of beneficial owner problem. What, are they passing through the vote to the pension funds? Like, I thought we were concerned about them! They’re passing through the vote? So let’s not pretend as if we’re getting some now new wave of democracy, where mom and pop are all of a sudden going to be able to…

I think that’s not realistic, but I can understand the desire to try to make that happen and understand the larger desire to make sure that votes are representative.

I guess the last thing I would say is, you know, we can’t hold individual shareholders responsible for the decisions they make, which is appropriately so. But we can hold asset managers responsible because they have a duty. And if we think that they are doing something that isn’t aligned with that duty, we have a mechanism to hold them accountable. We are now seeing in the proposal process all of these new proposals pushing against the corporate focus on climate, pushing against the climate science, pushing against anti-racist—and to me, the opposite of anti-racist is racist, so—pushing forward racist agendas. And there’s nothing we can do about that. But that’s real. A real result of greater participation. Which, on the one hand, I have no problem with it. But I will say that institutions seem to be pushing in the exact opposite direction.

Simon Mundy

I want to pick on one point you made, the term “asset owners.” Asset owner, where it’s applied to pension funds in particular, has always seemed a bit problematic to me because the person who’s managing my pension funds, they don’t own that. That’s my money. And yet, this term “asset owner” for that sort of person or that sort of institution is in very common use, both casually and formally.

Lisa Fairfax

If I said owner, I meant manager.

Simon Mundy

Yeah, yeah. And to be clear, but, the point that you were making there was, a lot of what’s happening with BlackRock, for example, is they say, you know, “We’re passing through the voting rights to the asset owners,” but very often by “asset owners” they mean the manager of pension funds, which is very often in the industry referred to as asset owners. But as you say, this is not, this is just passing it from one big financial institution to another.

And so, Luigi, do you think there’s a danger that, under the banner of this term “shareholder democracy,” you have BlackRock (just for example; it’s not just about BlackRock, but it’s a useful example) handing voting rights to another big institution, run by a very similar demographic of people. And this is called shareholder democracy. And this is portrayed as a big return of voting power to the ordinary person, but actually it’s not. And this is just a sort of branding exercise to an extent.


Luigi Zingales

So there is no doubt that there is a need for the BlackRocks of this world to appear to be shedding their voting power. Remember that this is not just an issue of ESG. It is also an issue of antitrust. Because by now, BlackRock, Vanguard, State Street, they control a lot of competitors. And so by voting their shares, potentially they could push or nudge, whatever you wanted to term it, these competitors to collude. That would be kind of a major violation of antitrust. So I think that the concentration of voting power is a problem. And BlackRock and company need to shed this if they want to survive as institutions intact. Because if they don’t, eventually they will be broken up. So I think this is real.

Now, I am with you that, very often, this sheds the decision power to other representatives. Think about universities, for example. They have large endowments, and they invest most of it in equity. And we see the students protesting to divest from oil, but we don’t see the students actually protesting and say, “You should vote, in this particular direction, your shares.” So I don’t know, for example, how much a Harvard or Yale own of Pfizer or Moderna. But last proxy season, there was a very important decision whether to share the vaccine with people in Africa. And actually, a substantial part of the shareholders voted in favor, but not enough to get majority. But in part this is because institutions like universities were silent.

And, I don’t know how much actually they own directly, but I bet money that, for example, the Gates Foundation own shares in Pfizer and Moderna. So, the Gates Foundation has a goal to promote health care in Africa, but with the shares they own, they block the diffusion of vaccines in Africa.

Simon Mundy

They didn’t vote on that, are you saying?

Luigi Zingales

I don’t know. I did not do the research on that. But I suspect they did not vote in favor of that because most likely their shares were held by Vanguard or BlackRock. And Vanguard and BlackRock, they voted against.

So I think we are in a world in which institutions don’t take responsibility. And so pension funds, I think, would be an interesting discussion. For example, in the state of California, CalPERS is a big institution, owns a lot of equity, and I think that the state of California needs to be very explicit how they

invest that money. Do they want really to maximize every financial return at the cost of creating more wildfires in California? Do they want to do some different trade-off? I think those are political decisions that cannot be left to the Larry Finks of this world. They need to be done by the ultimate owner. And if the ultimate owners are themselves agents, they should keep going and ask the mandate from their ultimate investor.

So I think is the beginning of a healthy process. Is it going to be perfect overnight? Of course not. But I don’t see honestly an alternative.


Simon Mundy

I want to bring in an audience question. And a reminder to the audience: We’ll try to keep this as interactive as possible. I’ve got an iPad here with your questions appearing in front of me. So please keep them coming.

Someone’s asked, “How would a shareholder with a few shares get an ear against another shareholder with thousands of shares? Even if it becomes easier to vote for all shareholders, I’m not sure it would have the desired effect.”

So obviously what’s needed is, you know, aggregation of a large number of small investors. Alex? Luigi was just saying at the moment, people like, say, students, activists, are much more energized when it comes to divestment (or at least have been over the years) than on specific shareholder votes. So culturally, in terms of among the general public, there’s not that level of awareness, perhaps, around shareholder votes. There would need to be—if you’re going to get results—enough to swing the needle of the vote on vaccines, for example, that Luigi was just talking about. So realistically, can we expect it to really move the needle?


Alex Thaler

I see a silver lining here. So, I agree (and this goes back to Lisa’s earlier point about the collective action problem) this is an issue. You have a lot of, sort of, diffuse shareholder base. We need a way to combine all those votes together.

Technology can certainly help with that. I think the silver lining—this is one of the reasons why we started Iconik actually—was witnessing what happened with GameStop. This was sort of a spark. You see a lot of people being able to organize effectively around a single issue. Now, what if you can create a machine to enable that across all of your investments? I think it’s a really interesting conversation. That’s something that’s unfolding right now. People banding together, using technology to solve this problem.

What you hinted at before about the divestment versus engagement issue, I think, is very salient. And I think we need to do a lot more to educate people on what it means to divest versus engage, and why one might be better than the other. I think Luigi and your academic partner, Oliver Hart, have pointed out very nicely in some research that, when you divest, you no longer have a voice. This is just the basics, right? You don’t buy something, you no longer have a say in how that company operates. And I think people should really understand that. They should understand that, when they do that, someone else is probably going to buy that share. And that person or entity or state doesn’t share your values. So really, it’s a race to the bottom. You get the people who own the stock now are people who don’t share your values.

So I do think we need to do a lot more education about engagement versus divestment, and to really encourage people to have their voice and exercise it.

Simon Mundy

And it strikes me, Alex, to follow up on that, that the way this is going to look is along the lines of what you’ve been developing, which is because you can’t expect every single shareholder to scrutinize every single proxy paper and vote on every single thing. So what you would have is a sort of template, or you would have a policy. You’d pick a policy framework. And you’d say, “I pick this one,” and then votes will be cast according to that strategy. So it might be, for example, I guess the policy might say, “We’re not going to support the reelection of board directors at a company that is pursuing new oil and gas projects,” for example. That might be in there. And then that gets applied to all the companies in the portfolio.

I wonder if this is going to become a big area of competition between companies like Iconik, as well as asset management companies themselves, and perhaps other sorts of companies that will be providing advice. That, increasingly, you would have these, I don’t know, you probably don’t call them templates, what’s the term that you use?

Alex Thaler

We call them voting profiles.

Simon Mundy

Profiles, okay. So, these profiles, and perhaps you’d really have competition among providers of profiles. And perhaps, I don’t know, one of them would become dominant. And then Luigi would be writing about the concentration of power with that particular profile provider. But do you think that that’s really an emerging area of competition, there’s going to be real competition on that front?

Alex Thaler

Perhaps in the future. Not right now.

Right now you see with proxy advisors, there’s really two main ones. There’s Institutional Shareholder Services (ISS), and Glass Lewis. And there’s a dominance of them in the market. And this is a well-documented problem that a lot of asset managers, these folks who have sort of this concentrated voting power, are utilizing these third party services and sort of checking a box and allowing them to essentially vote the shares.

So we do want to break that open. We want a sort of more rich marketplace for these sorts of profiles. And of course, we don’t want necessarily investors to only do profiles. We want them to forge their own path. We want to ask them, “What are your values on these issues? How many boards do you think a director should sit on? On particular issues related to independence, what are your preferences?” And to be able to have these overrides. That’s really what we focused on, is sort of a “set it and forget it” approach where people can express their preferences, and then it automates the process. And they can always go in and override it if they want. But they have the ultimate power there, and the cost is close to zero.

So yeah, I do see in the future, probably, a more robust marketplace for profiles. And maybe even get some brands in there. You could have a Sierra Club profile. You could have these other profiles that maybe mean more to investors, rather than an ISS request list.

Simon Mundy

I’m glad you mentioned ISS and Glass Lewis, because I wanted to consider how disruptive this is going to be for them.

Lisa, do you think the proxy advisors are going to have to fundamentally change their business model? Are they going to have to start thinking more about how they communicate with retail investors, or other changes to their model?


Lisa Fairfax

It would be great if they did. I think that, as a result of some of the pushback around the concentration of power with proxy advisories, you did actually have large institutional investors try to develop internal resources and expertise. And they’ll all say to you, proxy, the ISS is just one input. And of course, we see them sometimes voting differently, making recommendations differently.

But I would caution that one of the other problems potentially with pass-through is that you can have other institutions and other individuals over-relying on proxy advisory service. Because, let’s face it, they need someone to help them figure out how best to vote and to process all of the information associated. And it’s not that the information is necessarily complicated, but just that you don’t know how it shakes down with regard to each individual company, and the type of shareholder proposals that would emerge.

So the hope is, yes, maybe the proxy advisory services will kind of tailor and change some of the ways that they engage, and particularly engage in outreach. But it could be a boon to them, quite frankly, because now even more people are looking at them and looking for their expertise.

I just want to also underscore something else that’s really important about this participation conversation. And it goes to a little bit of Luigi’s point around student activists and other activists who might care very deeply about these issues, but don’t have the level of awareness they need around voting in these companies, and in fact, feel like the companies are terrible, and therefore they don’t want to have anything to do with them other than to vehemently protest them. That strategy has its pros and cons. But we do really need to think about educating citizens around the importance of holding shares, and developing a participation with regard to their shares. And that means that there needs to be more outreach. There’s, quite frankly, only a small percentage of Americans who are actually invested in these markets, and they have a profile that isn’t reflective of the broader demographics in our society. What’s great about the Greyhound story that I have in my book (and you were alluding to) is actually, you know, that was activism, the first example of activism or collaboration between James Peck and, quite frankly, the NAACP, when they’re thinking about, “How do we bring these issues to the corporation? How do we put pressure on the corporation?”

Many people have concerns around that type of activism. But I think that that’s an important part of the process. We need to make people realize that you can have an impact on a company and their policies and practices by exercising your vote, by owning shares and having long-term continuous ownership, so that you can monitor the companies that we all know have the greatest impact on the employees’ working conditions, wages, social conditions, climate conditions, all of those things. And I think we need to do a better job of including people into market.

I think what Alex is doing around technology can really help in that area, especially around the aggregation of interests. How you overcome this problem is to aggregate individual retail interests in ways that, then, you can deploy with regard to various corporate votes.

Simon Mundy

You made a really important point there about how the demographics of stock market investors do not match at all demographics of the population as a whole. There’s a very large number of people who don’t have any shares or fund investments. And of course, whereas in the early 19th century you had “one shareholder, one vote” now it’s of course, “one share, one vote.” So the richest shareholders and investors have a lot more clout than the less rich ones.

So I wonder if there’s an extent to which “shareholder democracy” could come into conflict with “democracy democracy,” whereby the more we empower individual shareholders in accordance with how many shares they have, it means we’re disproportionately favoring the richest people, a disproportionately white, male, older demographic, and to what extent that could be actually quite problematic in a context of already very high levels of inequality and a lot of problems around social and economic injustice. Do you think there’s a way to make sure that we do it right, Lisa?


Lisa Fairfax

Save the world, you mean? It’s interesting. Oftentimes you’ll see people talk about shareholder power as a counter to corporate power. I mean, corporations have broad influence over the economy and therefore over all kinds of social and social welfare issues. And at some level, increasing shareholder rights and power gives others a say in that process. So I agree with Luigi here. There is, at some level, a way in which shareholder power actually counteracts some of the problems with the intrusion of corporations in the social conversation. Certainly that’s what the Supreme Court said in Citizens United. They were like, “Hey, don’t be that concerned about corporate influence in the political process, because shareholders will be able to counteract it. And we have these great disclosure rules that are going to save the day.” But certainly there is a little… To the extent you have real transparency, and the shareholders actually exercise their power, shareholder democracy could align with the real democracy.

But you’re absolutely right. There are many ways in which it can’t, and doesn’t. Most people own shares as a result of their employment. So if we have employers that don’t give equity interest, there’s all kinds of ways in which that impacts who own shares and how they own shares. And we won’t even mention dual-class stuff. But yes, it’s a challenge to real democracy to have both corporations and shareholders with an outsized influence on these important issues.

Simon Mundy

Luigi, do you think there’s grounds for concern there? Or do you think, fundamentally, we need to tackle problems of economic inequality, and that’s best done through things like the tax system? And, separate to that, it’s basically a good thing to reduce the power of the management elites? Or do you think there could be some grounds for concern about further empowering this relatively small group of very affluent individual shareholders?


Luigi Zingales

So I think it’s very important not to lose sight of the fact that we need the government to implement regulation and policies for the benefits of the population at large. So I don’t think that shareholder democracy is a substitute to the work of government intervention.

Now, unfortunately, it is a necessary complement in a world in which, as Lisa was saying, corporations have an enormous amount of power. And so it’s very hard to tackle from any other way because basically they are constitutionally protected. And so I think shareholder democracy is a way to deal, in a more accountable way, with that power. But it needs to be, number one, joined by the power of our constituencies, in a sense. We know that employees are very influential in what companies decide to do or not. And we know that customers are incredibly influential. We might not like, sometimes, the consequences, but look at what happened to Target or Bud Light. If you sort of portray an image the customers don’t want, customers react very, very strongly.

So I think a combination of more accountability to the various stakeholders is a necessary step to make corporate power more accountable. But it’s not a substitute for the role of the government.

Simon Mundy

I want to bring in another audience question here, which is an interesting one.

“There’s been a lot of discussion about shareholder voting. But is there also an issue of proxy access, and the ability of someone proposing a resolution to get the same resources and access to promote that proposal?”

Alex, is that part of what you’re looking at? As well as helping people to vote, helping people to submit a proposal, to organize around a cause, and help them through it? Because for a nonspecialist, it can seem quite intimidating.


Alex Thaler

I think that’s an excellent question. It’s not something that we’ve focused on, but we’re in consultation with a lot of folks who are doing that. I think there could be a lot of work to promote better access to the process and to make that a little more efficient.

I think what you’re seeing, what Lisa was kind of hinting at and what you’ve hinted at Simon, about, “Who owns the shares? And what kind of cross section of society do they represent?” You see a similar dynamic unfolding when it comes to the proposal space. There’s a very small group of people who understand SEC rules. Who understand how it works. Who have been doing this work for the last thirty years, and are making these proposals. So I would love to see other types of proposals. You kind of see the same proposals over and over. Maybe they evolve a little bit year over year. You start to see some new issues. But I do not think they’re representative of the bigger set of issues out there that people care about. So yes, I would love to see a more democratic process around submitting these proposals and engaging with companies. Absolutely.

Simon Mundy

Lisa, you made a really interesting point earlier about how people access information—the influence of social media, in particular. And we were talking a bit before the session about the danger of disinformation, which obviously, at the moment it’s never been easier to mislead people on a mass scale, and it’s becoming easier and easier as AI gets get better. Should we be concerned about that? We’re obviously concerned about misinformation attacks on our democracy. Would that also be a potential problem if shareholder democracy moves on to another level?


Lisa Fairfax

I mean, absolutely. The research that I’ve tapped into around what influences retail shareholder folks, you know, there’s not that much of it. And many retail shareholders don’t vote. So we are only getting glimpses of what may influence them actually to vote, and what may guide their vote. But I think that some of that research is troubling, because it suggests that they are maybe getting inappropriate information, or at least not full information.

We know that, right now, our society is incredibly polarized. We know that society oftentimes doesn’t get full information. We’re watching one set of shows, one set of commentators, one set of… Right? And that increases the possibility of disinformation. And there are huge, let’s face it, attacks on the credibility of media. As soon as you live in a society where you suggest that media can’t be trusted, that’s a pretty problematic place to be. We don’t know how to separate truth from falsehood, it’s hard to do that. So you can imagine those issues are going to play out in the corporate sphere as well.

And on the one hand, I don’t want to harp on it, but, at least institutions have additional resources, expertise, and a history they can bring to bear. I love that Alex brought up in the shareholder proposal process the same thing, and that we have people who are sophisticated players in that space and who hopefully can mitigate some of these concerns. But it is a real concern. And we have to be very thoughtful about how we make sure that people are at least getting a robust amount of information, even if we can’t prevent some of the disinformation. Because we’re not going to be able to do that. But we have to do the best we can.

Simon Mundy

Luigi, what’s your take on the disinformation question?

Luigi Zingales

I am a bit of a contrarian here in the sense that, sure, there is certainly misinformation but, with all due respect for the official legacy media, it’s not that the legacy media were doing a great job. In America, the Tuskegee Syphilis Study went on for 40 years with the media ignoring it. I don’t think this would survive in today’s world of social media.

So I think that, yes, we do have the risk of misinformation. But also we have less of a risk of massive cover-ups like there have been in the past. And I think that that’s very healthy. So I’m actually more optimistic here than most people.


Simon Mundy

Alex, from the tech side of it, in terms of making sure people have access to the information they need. Is that something that you’re getting into? Other companies in this space? Or is that a bit outside the wheelhouse?

Alex Thaler

No, absolutely. I think, to be successful in this space, I think you need openness and transparency. In our work that we do, when we auto-vote shares, we immediately notify the user and say, “This is how we think you want to vote based on the directions you gave to us. And now you have an opportunity to change your votes if you want.” And I think that’s critical over time to provide those notification mechanisms.

I did want to go back to an earlier point about disinformation. We did see some really interesting trends in this space. There are some folks who are filing proposals using language of, sort of, the “other side.” And this is, particularly, conservative folks who are using the language of progressive proponents. So I do see there’s some interesting challenges. And I think, if I had to guess, part of the goal of that tactic is to try to fool people into voting for something by using identical language. So I take your point. There’s an issue here.

But I also want to credit what Luigi said, which is, “Well, then now there’s actually bigger awareness that this is happening, in part because of social media.” Because this information space is so fluid and you’re able to get information, people are able to spot these problems very quickly. So I share his optimism.

Simon Mundy

Another audience question.

We’ve been talking a lot about the US, where all the panelists are based. But obviously these issues are live everywhere. Luigi, would you say that these issues “look different,” this is the question, “Do these issues look different outside the US? Or is a similar dynamic playing out all over the world?”

What would you say?


Luigi Zingales

So I think that Europe is much more sensitive on these issues than the United States. So in that sense, it is much more ahead on many of these issues. And in some countries, institutional investors have kind of a fiduciary duty to behave in a particular way, including, for example, considering the environment. So in that sense it is very different than the United States.

As far as I know, Asia is much less into that at the moment. But things might change.

Simon Mundy

There’s one thing which I wanted to raise here, another audience question, to do with the views of public companies themselves, and the people who are ultimately facing these votes. Do we all have the sense that they’re fairly happy with all the stuff that we’re talking about? Would some boards and management teams be perhaps a bit resistant or nervous about this?

Lisa, what’s your sense on that?


Lisa Fairfax

My sense is that boards are really struggling to try to navigate these really, really rocky waters. Similar to institutional shareholders, they’re getting it from all sides. Their shareholders, or at least the institutional ones, and many others, were telling them to focus on certain things, to make certain statements, to engage in particular ways. The reality is, a lot of what companies have done has been in response to shareholders. In direct response. That is, shareholder engagement, shareholder democracy, at some level had its impact. And so companies started creating board oversight committees, and diverting, and doing all that. And then all of a sudden they got this tremendous backlash.

So, I think companies are trying to get some clarity. They would love clarity. They’re trying to find a middle ground, and in this society it’s not clear that there is a middle ground. You mentioned Bud Light and Target. Some of what’s happening is that people feel like they can play both sides and find the middle ground. It turns out that, what’s happening now, you just have to figure out what you believe in, and then be prepared to defend it. Because there’s not this, kind of, neutral lane you’re going to be able to drive down that’s going to protect you. So companies are really, really struggling in ways they haven’t before.

You mentioned the international scene. The last thing I’ll say on that is just, you know, a lot of the reason why companies have been asking for help, if you will, in this area is because US companies’ interests don’t stop at the border. They’re global companies. There are regulations and values and duties that they’re being subjected to in the global marketplace. And then they come to the US. And it’s, like, it’s a hot mess. Right? And trying to get some harmonization there. So I think they would, in my view, companies would love for everybody to get their, regulators to get their act together on a harmonized, harmonize what they should be doing. That’s not going to happen. And so I think it’s treacherous waters.

Simon Mundy

We mentioned the idea that ISS and Glass Lewis might have to re-jig the way that they do business. More communication, potentially, with retail investors.

Perhaps companies themselves, Alex, will also change? The job of head of investor relations might look quite different in the future because you’re not just dealing with institutions, you’re to a large extent dealing with Trump, trying to get your message across to retail shareholders. Would you expect that to increasingly be the case?


Alex Thaler

Yes, yeah, I do. And I agree 100% with what Lisa was saying. I think it’s very difficult for a board right now to know what to do.

If you imagine what shareholder voting looked like 150 years ago: It’s a group of people in a room, with the shareholders raising their hand on the issues, so that the board knows exactly what their shareholders wanted. They’re in direct communication. Over the last 50 years, you’ve seen this intense disintermediation, where now you have all these entities that are controlling votes. And companies, especially retail-facing companies, are challenged to understand which path they should take. So I think reforging the connection between the issuers and the beneficiaries and the folks who own those shares is very valuable, and will help point the direction in terms of what kind of policies they should pursue. It’s a big challenge right now.

Simon Mundy

Luigi, if I were the head of a company, and I came to you and said, “How should I handle this?” I’d love to have your perspective both if I were an industrial company or nonfinancial company and also if I was Larry Fink, let’s say. What would be the best way for them to handle it, if their sole focus is on protecting the long-term returns?


Luigi Zingales

That’s tricky, because I think that if I advise them only on what is their narrow interest it is different than, say, advising them on what is the common interest.

I think that companies are very good at navigating the ESG space by getting nice ratings, and advertising those ratings, and doing all that stuff. But they really, really don’t want to give up their power of control to anybody else. So I think they’re very antagonistic to shareholder democracy. And so my advice is, “Get over it! We live in a world in which there is more accountability. And if you want to live in the 21st century, you need to understand that you need to share power, that it is not absolute power.”

But I don’t think it’s a message that neither CEOs nor boards are eager to embrace at the moment.

Simon Mundy

And for financial companies? Do you think BlackRock, for example, has a powerful economic incentive to roll out pass-through voting as effectively and as quickly as possible? That it will be good for business, both in terms of eliminating this political distraction, and also giving them a competitive appeal for investors who value this kind of thing?


Yeah, I believe that first one, more than the second.

I think that for BlackRock, but also for Vanguard, etc., it is a necessity to do that. If they don’t do that, I don’t see them as viable long-term. Because they’re too powerful. And in one way or another, the government will intervene. So the pass-through voting is the least of all the evil that may come down to them if they don’t do something.

So do it fast, do it massively, and advertise it. And be happy about this because the alternative is worse.


Simon Mundy

I think that’s almost certainly true.

And we’ve got another really interesting audience question here. Lisa, I’d love to have your thoughts on this.

“How much of a blow was the post 2016 rise of populism for the push for shareholder democracy?” Do you think it has been a blow? In fact, I’ll throw out another sort of case study–related question which came in as well. So, A: Has it been a blow? And B: Will shareholder democracy suffer from the same problems as political democracy with this incredible polarization that’s increasingly bad-tempered and antagonistic?

What’s your take? A nice, light one as we come towards the end of the session?

Lisa Fairfax

Yeah, my light one is, yes, although it’s likely inevitable.

I think people were under the impression that shareholders were all the same, and all have the same set of interests and values and even financial timelines. And what shareholder democracy has unmasked is that is not true, and it’s created divisions and polarizations.

Can I say one more thing? Because I know we’re headed out. You, in our prior discussions, we were talking about Hobby Lobby. And you raised this question about doesn’t Hobby Lobby suggest that shareholders can engage in a for-profit company on things beyond profit. And my initial reaction was, no, Hobby Lobby was limited to free exercise rights, so closely held corporation, etc. But I just want to quote something that was in Hobby Lobby because I went back and read it, and it says this. “While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so. So long as its owners agree, a for-profit corporation may take costly pollution control and energy conservation measures that go beyond what the law requires.” And it goes on. And so there’s no reason why they can’t also further religious objectives. I think we have to recenter this discussion and keep in mind that corporations have a tremendous capacity to do things beyond strict profit maximization. And even Justice Alito said so.


Simon Mundy

Well, we could keep talking about this all day. It’s such a great discussion. I’m afraid we are out of time. But that’s a really powerful note on which to finish. Thank you. And thank you to all the panelists for a really great discussion. I’ll just hand back over to you, Chris.


Chris Wheat

Thank you Simon, Lisa, Alex, and Luigi for your time and insights today. I thank all of you for being with us this morning, or afternoon if you’re on the other side of the pond.

Please remember to join us for the final event in the Unpacking ESG series on June 21, focusing on the politicisation of ESG. That event will feature Jay Clayton, Damien Dwin, and Chicago Booth’s Marianne Bertrand, and will be moderated by the Financial Times’s Patrick Temple-West. The link to learn more and register for that event can be found in the chat. Thank you all again for joining. We look forward to hosting it again. Have a good day.

Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.