Oh they do. Interesting.

https://about.vanguard.com/investment-stewardship/how-our-fu...

Not clear to me how they decided how to vote.

They have a department responsible for this, among other things.

https://about.vanguard.com/investment-stewardship/perspectiv...

I only opened up the "500 Index Fund" PDF but it was interesting to note that they voted against almost every proposal that was brought by shareholders

Yes, and they voted against the proposals mentioned in the article, except for equal share class voting rights.

They probably vote in the best interests of other people. They possibly even sell the votes... (Is that illegal?)

Yes, it is.

Of course it is, if it can. This is a consequence of putting an investment vehicle in charge of what it's investing in. The only alternative is having the investment vehicle potentially own a company and not get to control it, I suppose because it's an investment vehicle and not capable of directing a company appropriately.

Which makes sense to ME, but you can be sure your investment vehicle is actively directing everything you're investing in, towards whatever benefits the short-term value of whatever you think you're helping.

Possibly excepting certain arrogant companies like I dunno, Amazon, Uber: stuff that is essentially ungovernable, especially when you can't get controlling interest of the thing.

I vote every time my fund manager allows me to.

Someone has to vote as those shares are owned by someone.

Since you are not actively investing in FB or any individual company, you can’t vote (since you passively invested in an index). Seems fair to me.

For most of us who have exposure to the company through our S&P500 exposure in retirement accounts, there's no real alternative that gives broad market exposure but doesn't have FB.

They do, and it's arguably a big problem, since they aren't trained to make good managerial or investment decisions--just following a formula. And while no accusations have been laid directly, the economic consequences of the votes they have far outweigh their exposure to those decisions, so they're susceptible to corruption.

Huh. That sounds bad. That sounds like power collecting where it shouldn't for the wrong reasons. Bad enough that maybe it needs a legal or regulatory solution.

Why? How is Vanguard, an investment management firm which employees thousands of trained professionals, not qualified to cast votes on corporate governance? And in what sense is it "power collecting"?

Yes, this is an issue that is largely debated, and there are some very interesting conflicts of interest - just curious why you specifically think it's so bad.

My issue with it is that index funds don't compete on the quality of their contribution to governance. Many index funds are kind of fungible with similar low costs and performance relatively to the index they are supposed to track.

So how much money (and by extension votes) these index funds wield is not connected to the quality of their contribution to governance. It also seems to me like there isn't much accountability and visibility into how they are voting from the perspective of people deciding which index fund to invest in.

So you have people collecting massive amounts of clout, but no feedback loop ensuring that they lose that clout if they underperform at that particular task.

Also one of the talking points of passive investing is that the trained professionals aren't as qualified or smart as they think they are. Active management risk is something to be avoided. As some of these funds grow in size they wield significant power and introduce active management risk. You just don't see it because the fund still tracks the index.

I know that last bit is splitting hairs. Some active management always occurs otherwise how can companies function.

One question is why should a passive fund be treated differently from an active fund in terms of how they contribute to governance? One difference is some of these index funds are absolutely massive and wield more power then a typical active fund.

Yeah, definitely good points. Even with a department looking after voting, they're not nearly as "vested" in the results of their voting as something like an actively managed long value fund is.

They also have large conflicts of interest -- they don't just own a big chunk of a company, they own a big chunk of its competitors too.

Index funds are agents of their certificate owners, so no principal-agent problem. Seems fine to me.

It's not principal agent problem, it's a competition problem. Maybe Sprint can't buy T-Mobile, but if Vanguard owns both it amounts to the same thing.

John Bogle himself chiming in on it:

https://www.seattletimes.com/business/vanguard-founder-john-...