The Conundrum of Common Ownership

By: Jennifer G. Hill (CLS Blue Sky Blog)

My forthcoming article, “The Conundrum of Common Ownership,” examines the phenomenon of common ownership through a corporate governance lens.  The common ownership debate has become one of the most contentious in corporate law. It is a by-product of major changes to capital-market ownership structure, which have triggered concerns about the rise of institutional investors, the growth of index investing, and the rapid concentration of ownership in major international financial markets.

Common ownership theory focuses on concerns about the incentives of large financial institutions holding widely diversified portfolios of shares in competing companies within a particular economic sector. A number of scholars (“anti-common ownership scholars”) have argued that, even where institutional investors own relatively small ownership stakes, their collective holdings in competing companies produce anticompetitive effects. The basis for this claim is that, in such circumstances, the institutions are interested in the financial performance of their portfolios as a whole rather than the performance of individual companies in that sector.

Other scholars, however, have challenged both common ownership theory and its regulatory prescriptions.

Although the common ownership debate began in the United States, it is now attracting attention around the world. European intergovernmental and regulatory organizations have focused on the debate, which also has relevance to certain jurisdictions in the Asia-Pacific region. This is particularly true of Australia, given the distinctive role and large size of superannuation/pension funds in Australian capital markets and the concentration of certain industries, such as the banking and finance sector…

Continue Reading…