The presumption has always been that active fund management is far more likely to impact how boards of public companies manage themselves. The ability to move in and out of stocks means CEOs have to be cognisant of such shareholders' views on performance. This fascinating research from HBR shows how Index Funds/Passive investing also can have a positive impact on how firms run themselves.
What happens when index funds run Corporate America? Hedge fund activist Bill Ackman posed that question recently in his fund’s annual letter to investors. It’s a really good one. No one knows what consequences the boom of passive investment funds will have for the corporations they own. It’s something my coauthors and I explore in a forthcoming research paper, and our conclusion goes against the prevailing wisdom.