“The network of global corporate control”?

This paper, by Vitali, Glattfelder, and Battiston, has been getting a lot of publicity, here is part of the abstract:

…We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers.

I did not find this paper easy to follow, but I can show you the top few control holders, with Wikipedia links supplied by me:

1. Barclays, 2. Capital Group Companies, 3. FMR (Fidelity), 4. AXA, 5. State Street Corporation, and 6. JP Morgan.

The rest of the list, especially the top 25, is heavily financial, see  a reproduction of it here.  What does Barclays own on the commercial side?  The paper is silent on this.  CGC is a batch of mutual funds, far more decentralized than the aggregate measure from this paper would suggest; lately it’s been doing major layoffs.  Fidelity is also a batch of investment funds and it is misleading to think of Fidelity shareholders as exercising control over what is held through the various funds, even though they are appointing managers to run the funds.  AXA is a French insurance company and financial conglomerate.  State Street is another umbrella of funds and investment companies, again proxying for a wide degree of dispersed investment.  JP Morgan Co., chartered as a bank in the United States, faces serious limits on what it can own commercially, although it does run private equity services for clients.

Think about it: Fidelity proxies for millions of individual (and institutional) investors, and so it is not a corporate Blofeld in disguise.  That it “owns itself” does not change this basic fact.  Here is an interesting new paper on the role of mutual funds in current corporate governance; here is a somewhat older paper.

Mathematically derived linkages do not equal control or necessarily point in that direction.  This paper needed a big dose of verstehen, it is more misleading than illuminating.  Start again, distinguishing between ownership/control and financial intermediation and see what comes out of the mix.  Comcast does own and control NBC and that relationship is different from the large network of assets held through Fidelity mutual funds.  The real lesson of this paper is simply that a large chunk of financial intermediation is run through a few dozen firms, hardly a revelation.

I thank a loyal MR reader for the initial pointer.  Addendum: Tim Worstall also nails it.


Barclay's is Barclay's Global Investors, a mutual fund/ETF complex. Your intuitions about Capital, Fido, State Street (huge ETF sponsor), etc. applies similarly to Barclays.

...and Barclay's does not own Barclay’s Global Investors as of December 2009. That firm was purchased by BlackRock. The 2007 data used by the paper is out of date.

Absolutely correct - most of these asset managers are passive investors who exercise no control whatsoever.

Voting proxies is no control whatsoever?

I used to work with the equity investment management division of one of the six companies listed above and worked directly with directors who were on the proxy voting committee. The committee voted based on the advice of Institutional Shareholder Services (ISS), the opinions of in-house analysts, and what was thought to be "the right thing to do" by the people on the committee. There was no way to know what the actual mutual fund shareholders thought on the issues of the hundreds of billions of dollars of equity that the committee voted the proxies for.

Did the mutual fund shareholders think management overpaid in the say on pay vote? We didn't know.

Did the mutual fund shareholders agree with the new board members that the chairman nominated? We didn't know.

Did the mutual fund shareholders think that utilities should divest away from dirty coal power at the cost of some profits (just to pick one issue as an example)? We didn't know.

This doesn't even consider the fact that outside of up/down votes of merger agreements and proxy battles to take over the board, most of the votes really didn't have any effect on the companies despite representing the will of the owners of those companies.

You're not supposed to telepathically know what they would think, you're supposed to act as their fiduciary and make decisions that are in their best interest. That's why they pay you.

The paper has an amusing spelling mistake - clearly an early version! "weather financial institutions"...

"In the literature on corporate control there is a debate on weather financial institutions really exert the control associated with their ownership shares"

I agree that this paper doesn't show us anything that people who are familiar with the global economy would not already know. But this is something of a revelation for, excuse the term, the 99% who have no idea how things actually work.

I also don't think people should so easily dismiss passive investors and how much control they exercise. I think this is something that is much more complicated and from what i have seen even money invested with "no strings attached" tends to have some invisible strings that people pay a lot of attention to

Shareholders have two ways of affecting how a company is run. Activist investors use "voice", presumably when they think they have some insight into how to run a company better than it is currently being managed. Activist investments are always narrowly focused, and in the secondary capital markets, they represent a miniscule amount of the total capital invested in the whole economy. Passive investments use "exit" -- the threat that they will divest from a poorly managed company -- to provide the right incentives to a company's management to run the company well. Passive investors generally do not have any comparative advantage in managing the companies they invest in, and they may employ their capital more broadly (in entire indexes or over entire sectors).

AXA also owns a large interest (~60% IIRC) in Alliance Bernstein, which is also a mutual fund type company.

Haven't looked at a 10-K for a while, but I would venture that AXA is closer to a Fidelity.

Hey Tyler, ask Alex sometime whether he thinks proxy voters have any more direct impact on, say, the governance of Fidelity than citizen voters have on the governance of democracies. Unless he's able to do some very serious hair-splitting you're unlikely to come away feeling as sanguine about the fact that, say, Barclays has millions of depositors or Fidelity has shareholders.


It's always amusing to recall that right through the early 1980s people worried that if "mainframe computers" grew too sophisticated they would control the world. Those of us old enough to have worked with alumni of the mainframe days, however, heard a different story: if computers grew too sophisticated then computer programmers would rule the world.

Of course out came MS-DOS, then the Macintosh, and (Siri not withstanding) the notion of "infallibly powerful" computers are so remote that a friend's daughter simply couldn't comprehend the whole HAL "I cannot make a mistake, Dave" business when he dragged her to see the newly restored version.

The point being that whereas there's no objective threat from a handful of what as you say amounts to "public carriers" of financial function forming a network of control over the commercial economy (any more than there's objectively a threat to communication if only two or three companies control all telephone communication) the same can't necessarily be said of the operators of those companies. Who if for no other reason can generate enough wealth from the transactions they facilitate to wield considerable leverage in the political sphere. Especially to the extent they meet at places like Davos or that "hoods in the woods" meeting for billionaires in California, serve on each other's boards of directors (or more likely appoint each other's friends and allies), then the network they form can exert indirect but still-considerable control in a way that millions of even highly-motivated individual proxy voters will simply never have.


This reminds me of a campaign smear that was briefly popular in the mid 2000's: basically, arguing that someone "owned" an unpopular company (Enron, tobacco, pharma, Chinese company, etc) because they had investments in funds that held the stock. Because most people with 401Ks or whatever own some sort of total-market or S&P 500 index fund, this could be said about vast numbers of people.

Yeah, folks of a certain ideological bent are going to run with this paper. Flaws included...

I am the 99%, but my retirement fund is the 1%!!!!

It may be purposefully distributed as a diversion. Diversion is a mainstay of disinformation dynamics. One downside to that tactic is that distrust of institutions is magnified, defeating the purpose, when the institution using the tactic is discovered then commonly known.

mutual funds also have boards of directors (even ETF's I believe) that are supposed to be independent of one another. This would supposedly make it tough to vote (proxie) across a myriad of differing funds to exert control on a corporation. They attempt to though

Does this mean it is now acceptable for anthropologists to publish papers about physics, so long as they make their arguments using a complicated language (ancient Tibetan?) that few physicists can read?

Are you saying that economists are, frankly, not all that bright? I know economists have pretended to be scientists, as opposed to other social scientists. Given the discipline's track record in charting and predicting the world economy(ies), it should welcome the efforts of these Swiss network analysts.

Comments for this post are closed