> His answer was that index investors are ideally
> situated to exert discipline over managers because they have to hold
> the stock - they can't follow the "Wall Street rule" and just sell.
> So instead they'd lobby managers at underperforming corps, and
> presumably organize proxy challenges if they resisted. That's a big
> organizational challenge in a world where index investors are the
> minority and the Wall Street rule still predominates. But to Bogle,
> it's direct shareholder pressure rather than indirect pressure coming
> from a sagging share price that would do the trick.
Interesting. Well, that's fine in practice, but it could never work in theory. What would one of those hypercapitalist finance economists like Michael Jensen say about it? For one thing, Bogle assumes a need for concentrated ownership, otherwise there's no mechanism for investor discipline. Does that mean that the whole capitalist system of firm governance can only be made compatible with rational a individual investment strategy in a world of concentrated ownership (i.e., institutional investing)?
Seth