Mandate Ownership : power concentration and second-order agency conflict in the age of passive asset management

The rise of passive investing is leading to a new reality of horizontal ownership in combination with a reconcentration of corporate control, notably at the Big Three passive asset managers BlackRock, State Street and Vanguard. We introduce the concept of mandate ownership and point to a process of double decoupling in which the Big Three retain the elements of shareholding most relevant to corporate control, while leaving the entitlement owners with the risks. We subsequently show how the market for corporate influence is the relevant arena for the exercise of power in corporate governance. This results in a second-order agency conflict between unaccountable asset managers who exercise considerable power over corporations and dispersed entitlement owners with no power of oversight of control. The limited recognition of mandate ownership in theory and in regulation creates an opportunity for rent-seeking activities and the accumulation of power over corporations by mandate owners