[Update, 10/28: An updated version of Einer Elhauge's article is available
here.]
The Wall Street Journal
reports today that activist shareholders, who force management and operational changes in public companies to boost "shareholder value," are increasingly enlisting large mutual fund companies as allies and thus winning more battles. Their aims generally: "share buybacks, cost-cutting and asset sales."
That boost to shareholder activism, taking place over the last decade, recalls a theory of what's driving growing economic inequality
recently advanced by Harvard law professor Einer Elhauge. According to Elhauge, increased consolidation of public company ownership by institutional investors like BlackRock, Vanguard,
Fidelity, and State Street leads to a phenomenon called "horizontal shareholding," in which these mega-investors own major stakes in all the major players in a given industry and thus provide incentives to those companies to collude rather than compete -- or more exactly, to act in ways that boost share prices across the industry rather than relative to their competitors.
Elhauge's analysis is prompted by the fact that "the increasing share of stock held by institutional investors...has grown from 34% of all stock in 1980 to 67% of all stock in 2010." He links that rise to the often-cited drop in the percentage of corporate revenue going to wages and capital investment:
