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Citizens United, Shareholder Protection, and “the Silence of the Funds”

Liz Kennedy

When the Supreme Court in Citizens United allowed corporations to spend money in elections they thought that shareholders would be able to monitor the use of corporate funds “through procedures of corporate democracy.”

But John Bogle, the former CEO of Vanguard, reminds us in a recent Financial Times column that “US financial institutions – mutual funds, pension funds, endowment funds, and bank trustees – hold more than two-thirds of the shares of virtually every publicly held US corporation, giving them total voting control.” This is a far cry from the state of affairs envisioned by the Court.

As Mr. Bogle points out, “these giant firms have been conspicuous by their absence from exerting significant influence on the companies that they collectively own. ‘The silence of the funds’ has been, well, deafening":

Corporate shareholders should have the right to decide if their corporations can make any contributions. But our corporate managers have no interest in facilitating corporate democracy and our institutional owners even less interest in exercising their voting rights.

Mr. Bogle reminds us that giant investment funds are fiduciaries for their shareholders, and calls on fund managers to take responsibility for improving corporate governance, concluding that it is “essential to sound long-term investing, to our system of modern capitalism, and to the national interest.”