The move shifts power from large asset managers to corporate insiders
By: Natalia Renta
Vanguard settled a lawsuit Texas and ten other red states brought alleging the largest asset managers in the world undermined the coal industry in violation of antitrust laws. Even though many legal experts have criticized these types of arguments, Vanguard caved, agreeing to a $29.5 million payment and terms that signal it won’t give corporate insiders like boards and executives any trouble. BlackRock and State Street are still fighting the lawsuit.
This settlement is yet another win for the oil and gas industry and corporate insiders more broadly. Large asset managers can shape corporate decision-making because they own a significant amount of most publicly traded companies. Anything corporate insiders can do to undermine that power is a win for them. And while large asset manager interests are frequently misaligned with the interests of the many workers saving for retirement whose money they manage, this shift in power means corporate insiders have more free rein to make short-sighted and overly-risky decisions that put retirement savings at risk.
Asset manager power
The main reason large asset managers’ significant ownership stakes can translate into corporate decision-making power is that the votes they cast on corporate ballots can have a decisive impact. Their votes can mean the difference between whether or not shareholder proposals on important issues such as workers’ rights, climate, racial equity, and political spending pass or don’t pass; whether a merger is approved or not; whether shareholders approve or disapprove executive pay packages; and probably most importantly, whether management’s or dissidents’ director candidates are elected.
In 2021, large asset managers threw their weight behind dissident board candidates at ExxonMobil, shocking the company’s management and board rooms across the country. Since then, oil and gas companies and entities representing the interests of corporate management have targeted asset managers in an attempt to coerce them into voting in alignment with them — or not at all.
Conflicts of interest harm workers
Asset managers are supposed to act in the best interests of the people whose money they manage — mostly workers saving for retirement. That would mean serving as a meaningful check on management’s short-sighted or overly-risky decisions. But asset managers have their own interests, which can run counter to those of their clients: expanding their assets under management and avoiding regulation.
Corporate insiders and their political allies have exploited these interests in their favor. Red states have pulled billions of dollars from BlackRock in an apparent attempt to scare large asset managers away from exercising their power in a way that runs counter to management’s agenda.
As far as regulation goes, the Securities and Exchange Commission (SEC) issued guidance last year suggesting that if asset managers engaged with companies on important issues while owning five percent or more of shares, they could face regulatory compliance costs that would be prohibitive for their business model. And in 2025, the Federal Deposit Insurance Corporation (FDIC) and Vanguard reached an agreement that binds Vanguard to, among other things, not “[d]irect or attempt to direct the management or policies” of an FDIC-supervised institution, its parent company, or any subsidiaries, to avoid more stringent regulation.
Now, to get out of the antitrust lawsuit and any further fire from red states, Vanguard has agreed, amongst other things, to “not direct or attempt to direct the business strategies or operations of portfolio companies” and “not advocate to any portfolio company that it take any particular course of conduct to reduce carbon emissions.” It also committed to continuing to offer its program that allows certain retail investors to choose amongst a few voting policies through at least 2032. But out of the four policies Vanguard offers, only one of them is remotely oriented towards holding management accountable to acting in the best interest of shareholders.
What can be done
When the balance of power shifts in the federal government, regulators should promulgate and enforce regulations that better align the interests of asset managers with those of the workers saving for retirement whose money they manage. Congress should, in addition to legislating on this issue, strengthen Social Security so we’re less dependent on behemoth private entities with their own interests for our retirement security.
States and institutional investors should also step up. They can bring the management of their stocks in-house instead of outsourcing it to asset managers. And if that is not immediately feasible, institutional investors can develop and enforce strong, detailed standards outlining what is expected of asset managers so they are aligned with the best interests of the people whose money it is. For asset managers that do not meet these standards, the investor should issue a request for proposals to find a manager who will.
Former New York City Comptroller Brad Lander did just that, recommending pension trustees rebid contracts with BlackRock and Fidelity because their decarbonization plans did not meet the office’s standards. Although trustees have yet to approve the recommendation, the process created a roadmap for how institutional investors can hold their asset managers accountable for acting in their best interests.
Related blog post: Yet Another Anti-ESG Congressional Hearing