BlackRock Influence: The topography of corporate ownership has been utterly changed with passive investor becoming a prevailing force in defining the corporate direction. One powerful observation can illustrate this change: the number of shares that passive investors hold in S&P 500 is now more than 35 percent, but they never take part in a public discussion.
The exact amount is different, however, ranging on average at 21.2 percent of S&P 500 companies and the median having 26 percent of its stocks owned in a passive manner to just 24 percent of the aggregate market capitalization of the S&P 500, but the overall trend is recognised as purely upward, and that points to a paradigm shift.
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This report discusses the trend which has made these passive shareholders, and most notably the so-called Big Three asset managers, have become powerful enough over the years to affect corporate strategy through the assertive use of their largely unnoticed proxy voting capabilities, without making any overt activist moves. With this form of control that is hard to notice, questions of concern arise on corporate responsibility, efficiency of the market, and the future direction of capitalism.
Table of Contents
Who Are The Passive Giants?
Passive investing is an investment strategy as it focuses on the long-term wealth accumulation through the purchase and ownership of securities that aim to replicate the performance of a definite market index or benchmark.
Passive investing Unlike active investing that also aims to beat the market by taking advantage of market opportunities through frequent trading and strategic timing, passive investment strategies are intended to act similarly to the market. This is commonly done with the help of the use of investment vehicles which are index funds and Exchange-Traded Funds (ETFs) that provide market wide exposure and diversification as well as reduced fees since there is reduced trading and management cost.
Top AUM Companies
The top three major asset managers, BlackRock, Vanguard and State Street, have emerged as the most significant players in this passive capital structure commonly known as the three largest index fund managers. Their overall Assets Under Management (AUM) are shocking, with passive strategies spread out in the markets worldwide. By March 2025, BlackRock had US$11.55 trillion in AUM, of which its equity AUM had already reached 6.205 trillion at that time.
As of January 31, 2025, Vanguard had about 10.4 trillion in global AUM, and as of August 2024 another report stated about 7.9 trillion. As of December 31, 2024, state Street AUM was at 4.7 trillion. The combined assets under management of these three firms amount to more than 20 trillion, with ownership of the greatest shareholding in a majority (almost 90 percent) of the S&P 500 companies. This huge number gives them unprecedented voting power.
Why they’re not like Other Companies?
Using the term of a passive ranking, these investment giants are not passive at all. The main realization of how they invest is that they are not chameleons in their nature of investment; they cannot easily liquidate the investments in the companies facing low performance when the companies are still constituents of the indices they track. This is quite the opposite of active funds, which may abandon position.
This implicit limitation implies that dedicated to the long-term value of their investment, passive funds cannot afford to sit back observedly, but have to use their power effectively by having and exercising their voice. This turns their passive investment style into an involved compulsion towards the corporate governance.
The Mechanisms of Influence | BlackRock Influence on Companies
The investment funds directly vote millions of proxies a year, playing a potent, yet largely invisible role in U.S. corporate America. To the passive investors, their holdings are so massive that their acceptance or rejection of proposals by the management and shareholders are of huge importance although they are not directly known to table resolutions. This voice is their main tool of controlling the actions of a corporation and ensuring the sustainability of value of their portfolio in the future.
The passive investors have pivotal influence in the composition of the board. They can support or object to director nomination thus influencing the independence and diversity in the corporate boards. The research shows that the larger is the share of passive ownership the greater percentage of independent directors and dissolution of anti-takeover mechanisms like poison pills.
How Top AUM Companies Manages Their Board of Directors?
BlackRock Influence on Voting: In one example, the 2025 voting policy issued by BlackRock has changed the expression to use of diversity of the board to “board composition, a more neutral term, which implies that the board needs to have a mix of professional and personal attributes that is similar to market standards, including gender, race/ethnicity, and other diverse representations, as mentioned in a footnote. In 2024 Vanguard had discussions with 974 U.S. companies regarding governance and risk oversight issues and voted on more than 36,500 proposals, including director election proposals.
An alternative opportunity of passive investors to exert an impact is provided by say-on-pay votes, which are votes on whether the structure of executive compensation is reasonable. Though in most companies, shareholders approve executive compensation plans by overwhelming majorities (with overall approval rates averaging beyond 90 percent in most companies), studies argue that the votes in most cases are often a form of general unhappiness with the performance of the firms rather than on the ins and outs of the package itself.
This means that the passive investors make use of these votes to indicate more elaborate issues on the efficiency of the management. These votes are required by the Dodd-Frank Act and new rules proposed by the SEC are expected to increase transparency on how institutional investors exercise their say-on-pay vote.
Vanguard And BlackRock Influence
Passive investors are harnessing their voting rights to dictate the actions of companies in certain policies, and notably in Environmental, Social, and Corporate Governance (ESG) areas, such as in matters of Diversity, Equity, and Inclusion (DEI), and company-related climate disclosures.
One of the most outstanding practical examples of such influence is the sensitivity of a company such as BlackRock to climate-related resolutions. Supporting environmental and social shareholder resolutions In 2022, support of the proposals increased drastically to 22 percent in comparison to the high level of 47 percent in 2021 and further reduced to 7 and 4 percent in 2023 and 2024 respectively. BlackRock explained that a large amount of these proposals were being considered as overly prescriptive, not economically beneficial, and asking companies to consider some risks that they are already mitigating.
The Silence Speaks Volumes: Do Passive Investors Stay too Silent?
Vanguard And BlackRock: One of the main criticisms of passive investors can be seen in how they do not appear to have a direct and company specific involvement and how transparent or opaque they are in showing the actual reasons why they felt the way they do when it comes to voting.
There are commentators who fear that this massive diversified ownership might undermine firm level self-control because the the amount of stock owned imposes a physical constraint on very detailed, firm specific level supervision. This may have the unintended effect of increasing the leverage of proxy advisory firms; companies may be unable to engage in face-to-face meetings with large institutional owners who would rather maintain their Schedule 13G reporting status which prevents active intervention but not the ability to suggest.
Do Vanguard and BlackRock Control Their Voting System?
Vanguard and BlackRock Influence: Citing these concerns, the largest passive investors, especially Blackrock and Vanguard, publish yearly so-called Stewardship Reports to provide information on how they engage and vote. BlackRock Investment Stewardship (BIS) works on the four main pillars of engaging with companies, proxy voting in the interest of customers, participating in industry discussion on stewardship, and reporting about its actions. In 2024, BIS had more than 3,300 interactions with greater than 2,300 exclusive companies in nearly 50 markers which delights in approximately 75 percentage of their customers AUM in terms of equities. They have voted in excess of 18,300 in shareholder meetings over 167,000 proposal with approximately 88 percent in favor of the management.
In a similar vein Investment Stewardship program of Vanguard is required to protect and enhance long-term shareholder returns which includes recommending sensible corporate governance procedures, but not strategy or operations of a company. Vanguard made close to 2,000 engagements across close to 1,600 companies in 2024, which represented 66per cent of its AUM and voted on over 180.000 proposals. Similarly to BlackRock, the voting data provided in the reports of Vanguard are an aggregate one, and the decisions taken are generally explained, especially that the support to environmental or social shareholder proposals is low (3% of the top 200 U.S. companies) when those were considered too prescriptive, of limited financial materiality, or on an issue already controlled by the company.
BlackRock’s Support for Environmental & Social Shareholder Resolutions (2021-2024)
| Year | Percentage of Environmental and Social Resolutions Supported by BlackRock |
| 2021 | 47% |
| 2022 | 22% |
| 2023 | 7% |
| 2024 | 4% |
Riding the Waves- The Regulatory and Ethical Controversy
Institutional investors have increasingly come into show and the U.S Securities and Exchange Commission (SEC) has been seeking more transparency regarding proxy voting. During late 2022, SEC introduced substantial modifications to the form N-PX, the yearly form that U.S. funds must complete to notify of their proxy votes. The new rules, which will go into effect during the 2024 proxy season, add more transparency,and funds must designate all their proxy votes to one or more of 14 categories including those in Director elections, Corporate governance, Environment or climate, and Diversity, equity, and inclusion.
Newly, the amount of shares voted as well as loans on shares and uncalled loans made before the record date should be disclosed by funds. The filings through form N-PX will also have the use of a tailored XML structured data language so that the information can be easier to analyze and compare. In addition, all 13F Form filers (institutional investment managers) says on pay vote will be filed, the first time ever all such parties are required to do so under a major provision of the Dodd-Frank Act of 2010.
BlackRock Influence on Institutional Power
These regulatory reforms are coming straight as a reaction to the accumulation of power into the hands of institutional investors, as they seek to lend more of their former silent influence to the audit trail and allow it to be more comparable, hence more exposed to scrutiny, probably to the formulation of new policy.
In addition to Form N-PX, talks and suggestions about how to improve the reporting of voting intent remain. Under SEC rule 206(4)-6, investment advisers who hold a voting authority must already adopt and implement policies and procedures so as to vote on the best interests of their clients, and also disclose such policies. This information is also planned to be more strengthened as well as easier in access during proposed amendments.
One of the most crucial ethical issues is about a possible conflict of interests, especially regarding the differences between the public statements of asset managers promoting ESG goals and their voting records. There is an expanding disconnect between what asset owners want asset managers to do on the environmental, social, and governance agenda and what asset managers are actually doing on ESG issues, including asset owner allegations that some asset managers are guilty of greenwashing or neglect to convert net-zero commitments into voting practice.
Enhancements to SEC Form N-PX Reporting (2022)
| Enhancement Category | Description of Change | Significance/Impact |
| Categorization of Votes | Funds must assign all proxy votes to one of 14 specific categories (e.g., Director elections, ESG). | Standardizes reporting, making it easier to compare voting patterns across funds and issues. |
| Disclosure of Shares Loaned | Funds must disclose shares voted and shares loaned but not recalled before the record date. | Provides transparency on how share lending practices might affect voting power and outcomes. |
| Structured Data Language | Form N-PX filings now use XML structured data. | Improves data usability, allowing for automated analysis and comparison by regulators, researchers, and the public. |
| Say-on-Pay Transparency | All institutional investment managers (13F filers) must disclose their say-on-pay votes. | Fulfills Dodd-Frank Act mandate, increasing accountability for executive compensation votes. |
The Horizon of Governance: Future in a Passive Age
The future outlook on the sector of passive funds implies a subtle change in the involvement. Asset managers legally hold fund securities, and have typically acted as proxy, but in recent years an emerging trend has been the use of pass-through voting, through which underlying investors are given increased power in the proxy vote.
An example is BlackRock, which has introduced a pilot program, dubbed as BlackRock Voting Choice, on its largest ETF so as to allow the millions of eligible shareholder accounts to choose between different voting policies. State Street also presents 10 proxy voting options of assets of $1.7 trillion. The shift can be considered the possible democratization of proxy voting whereby more diversified and vocal proxy decisions based on individual investor choice can emerge, therefore, undermining the centralized authority of the fund managers.
Why Passive ESG Funds Markets Are Interest of AUM Companies?
Passive ESG Funds market is growing at a fast rate. Within the three years 2019-22, the level of proportion of index funds with an ESG mandate almost doubled to 5 percent. Investors seem to want to pay a premium on such funds, with research indicating that they would be willing to pay 20 basis points a year more in fees to ESG against non-ESG fund.
It shows that there is a high demand among investors to invest in keeping with their values, and it is possible that passive managers will be forced to create even more specialized and, perhaps, more aggressive ESG policies. It is however notable that active funds continue to cover most of the sustainable equity assets across the world.
Vanguard and BlackRock Influence on Governance
The institutionalization and proliferation of the so-called passive stewardship teams in large asset managers implies that active governance is increasingly being transformed into a central, competition-based service, as opposed to being a regulatory obligation. Stewardship, which simply means employing investor rights and influence to safeguard and increase long-term value, has developed to include the ESG factors. It is moving to active ownership investing method.
This has been the case of rising power of passive investors which has drawn attention of the legislators, especially in the U.S. The Proposed Expecting Investor Democracy is Expected (INDEX) Act, introduced by Senator Dan Sullivan in 2022, proposes to emulate, at the municipal governmental level, what Narj usually does in the aggregate by requiring that Internet-passively managed funds with more than 1 percent of a company stock must vote in a way instructed by the fund investors.
This bill is politically based as fear that the Big Three are coercing corporations on taking some stand (e.g., on ESG) on issues that are not seen to fall within the confines of maximizing shareholder value. It would not apply to things of routine, but to important corporate action including but not confined to director elections, shareholder actions and matters of change of control.
Passive Investors Control & Power
At the same time, the SEC in recent guidance (February 2025) clarified the meaning of a passive investor to reporting under Schedule 13G. The prospect of communicating with the management to create pressure on certain matters, e.g. eliminating staggered boards or making changes to executive compensation, or the perception of using the power to vote against directors, may now cause the usage of the more demanding Schedule 13D.
This regulator change has made some institutional investors like BlackRock and Vanguard reconsider their shareholder engagement process. This control regime is a mixed blessing: it may well be designed to make things more transparent and accountable but, on the other hand, it may kill any engagements altogether, with passive funds withdrawing to the negotiations table to evade undertaking more intensive reporting procedures, creating a vacuum in governance. On the other hand, when pass-through voting becomes common or enforced, this may simply create a more crowded and less concerted voting environment and the results of that will be unpredictable on corporate governance.
Voices of the field Expert views and opinions
Passive investor influence is a popular topic of the academic and industry discourse that might be contradictory in the features of its development, and this is explained by the complexity of the topic.
The controversy on the effect of governance is especially acute: some researchers argued that active ownership is linked to better corporate governance, reflected in the growth of independent directors, the federal state of antitakeover, and growing success of activist initiatives. Other studies on the other hand find a connection between passive ownership and reduced board independence as well as, empowered CEOs.
Governance of The Passive Investors
By prioritizer the principles level governance issues Passive funds, whether through the board independence and executive compensation alignment, may achieve some degree of best-practice baseline throughout the market. Activists and the active funds can then focus on certain underperforming companies and gain the core backing of the passive funds because they promote bigger changes. This is an indication of a zero-sum game but a symbiotic relationship.
Leading personalities of the investment field provide their comments which appeal to the unobtrusive power of inert investors. As a founder of Vanguard, Jack Bogle once famously said, I Would Say Traditional Index Funds Represent The Last, Best Hope Of Corporate Governance. Such perspective highlights that the index fund ownership is long-term, permanent, which provides them with a major capability of carrying out good governance, as such funds cannot walk out of a company that is managed disastrously.
Vanguard Influence & Essence
The same could be said by Bill McNabb, a former Chairman and CEO of Vanguard when he explained the essence of Vanguard by stating: We will keep your stock when you meet your quarterly earnings. And we will keep it when you do not. We are going to keep your stock in case we like you. or even when we do not. We are going to keep your stock while the rest of the world is going up. And when the others around are stampeding out. It is because of this reason that we really are concerned about good governance”. This fact indicates the long-term commitment default that is shown in the focus of the passive funds on governance.
Indra Nooyi, ex-CEO of PepsiCo, albeit indirectly, did make the following pertinent comment: “Leadership is not only about amongst authority but also about influence”.
Final thoughts about the Top AUM Companies
The executive boardroom coup is actually a paradigm change in corporate governance. The unprecedented capital, invested by passive investors, namely the Big Three (BlackRock, Vanguard, and State Street) has enabled them to have immense, yet underrated power. They do not achieve their influence most of the time by activism in their voices, or direct operational control, but by repeatedly and collectively utilizing their proxy voting authority on important questions like board elections, executive compensation, ESG policies, etc. Such “quiet power” is directly related to their mandate to make permanent, index-tracking investments, which forces the investor to take up the role of a long-horizon manager of corporate value.
The changing scenario also forces us to question: Does this silent domination result in an advantageous capitalism and business responsibility? Although the long-term focus of passive investors is said to automatically promote healthy governance and efficiency in the market, the opponents lament about the concentration of ownership, the possible conflict of interest, and the reluctance to give the detailed explanation of how and why they choose to vote the way they do. Still one of the fundamental questions, both ethical and tactical, is to reconcile the effectiveness of centralized voting with the need to have variety and the open accountability of corporate direction.
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