What You Should Know About How Funds Should Vote Your Shares

Investment funds cast nearly 9 million proxy votes annually on behalf of American investors, effectively serving as corporate America’s hidden hand. Once a tedious formality at annual meetings, corporate governance has become contentious.

Fund managers traditionally vote on many issues on behalf of investors, but that’s changing.

The Rise of the Big 3’s Proxy Voting Power

Passive index mutual and exchange-traded funds (ETFs) now hold over half of U.S. fund assets and about one-third of all U.S. equities. The “Big Three” asset managers—BlackRock Inc. (BLK), Vanguard, and State Street Corp. (STT)—control the most shares in nearly 90% of S&P 500 companies, wielding enormous proxy voting influence.

Once reliable supporters of management, the Big Three have been the focus of grassroots campaigns like those of GLAAD and other progressive groups. “Just as GLAAD works to get out the LGBTQ vote in political elections, we are activating the LGBTQ community to get educated and vote during proxy season,” Sarah Kate Ellis, president and CEO of GLAAD, the media advocacy organization for accelerating LGBTQ acceptance, told Investopedia.

Conservatives targeted these funds after environmental, social, and governance (ESG)-friendly votes in the early 2020s. Their critics, like James Copland of the Manhattan Institute, call their power “peculiar” and hope that Congress or the U.S. Securities and Exchange Commission (SEC) will curtail the Big Three’s ability to flex their “voting muscle over all of corporate America.” They argue that since funds are mere conduits for investors avoiding investing decisions (they automatically get whatever is in specific indexes), they shouldn’t get to impose their values through proxy votes.

However, many trading strategies—from technical trading to quant models—would seem at least as disconnected from governance concerns—so where to draw the line? The fund giants argue, too, that index investors often have the most at stake, saying that as permanent shareholders unable to sell specific index holdings (as others who disagree with a company’s policies can), they must exercise their governance rights. BlackRock CEO Larry Fink calls index investors “the ultimate long-term investors,” while Vanguard argues their position requires “the highest standards of stewardship.”

New Ways To Make Your Voice Heard

Facing political pressure, fund giants now offer investors more control over proxy votes:

BlackRock

According to a company spokesperson, BlackRock’s Voting Choice program enables over 3 million eligible shareholders in the iShares Core S&P 500 ETF (IVV), representing about $275 billion of the fund’s total assets of $585 billion, to participate. Investors can choose among seven third-party voting policies or continue letting BlackRock’s team vote on their behalf. As of December 2024, $3.1 trillion of BlackRock’s $6.3 trillion in index equity assets are eligible, with clients representing $679 billion exercising this choice. Fink has said these programs “can enhance corporate governance by injecting important new voices into shareholder democracy.”

State Street

State Street offers 10 proxy voting choices across $1.7 trillion in assets, including all U.S.-based index funds investing in American equities—covering 81% of eligible index equity assets.

Vanguard

Vanguard’s program covers eight funds (excluding those tracking the (S&P 500 Index), representing 4 million investors and $250 billion in shares. It offers five options: Vanguard-managed voting, management alignment, ESG priorities, profit focus, or abstention.

What This Means For Your Investments

Fund investors wondering how their money influences corporate America can do the following:

The Bottom Line

Proxy voting has become a major battleground in American capitalism. By investing in funds, you delegate your corporate voting rights to managers with potentially different priorities. Regardless of your stance on ESG initiatives, your investment dollars are helping shape corporate America’s future.