Passive investors need to support activists’ attempts to address chronic underperformance and agency problems
How do the significant ownership positions held by the major passive investors influence corporate governance and, in turn, the performance of publicly traded companies? To find out, my co-authors Dhruv Aggarwal, Lubo Litov and I, in a paper forthcoming at the Journal of Law and Economics, reviewed the stewardship reports that the Big Three indexed investors, BlackRock, Vanguard and State Street, have published over the years.
The details and guidelines in these reports vary but by and large they disclose the name of the company the indexer engaged with or talked with, the sector, date of the last engagement, and the broad category of issues raised during the engagement with the company. To understand these disclosures, consider BlackRock’s 2025 stewardship report which is perhaps the most comprehensive of the Big Three. The Engagement Priorities BlackRock lists this year are: (1) Strategy, Purpose, and Financial Resilience, (2) Board quality and effectiveness, (3) Incentives aligned with financial value creation, (4) Climate and natural capital, and (5) Company impact on people.
The results of our study are sobering.
- We found little to no evidence that the Big Three engaged with firms with an intention to increase risk-adjusted portfolio value. There is no mention of total shareholder return or financial performance in the Stewardship report.
- The Big Three’s choice of engagement targets was unrelated to a company’s financial performance.
- Engagement by the Big Three with target companies is not associated with subsequent stock returns or changes in operating performance or corporate governance outcomes at portfolio companies.
- The Big Three asset managers are not more likely to vote against management at firms selected for engagement.
- The Big Three’s engagements with targets do not seem to move the needle in terms of executive compensation or quantifiable governance outcomes that we could observe.
Specific case of Cannae Holdings
These were large sample results but something similar may be playing out in one of the ongoing activist cases I came across concerning Cannae Holdings (NYSE: CNNE). Carronade Capital Management, founded by Elliott Management alumnus Dan Gropper, has launched a proxy fight against CEO, Bill Foley’s Cannae Holdings and has nominated four new directors to join the board at the upcoming shareholder meeting in December 2025.
Despite heightened attention to shareholder activism and campaigns, proxy fights remain rare and occur in only a small fraction of situations each year. The bar for change at the Board level is high and proxy fights tend to be expensive and time-consuming. However, sometimes there is a strong case for change, and these tactics are merited.
Consider Carronade’s case against Cannae and the CEO, Bill Foley.
Poor performance
- From its spin out in 2017 until November 7, 2025, as per S&P Capital IQ, Cannae had delivered a negative 5.6% total shareholder return despite one of the strongest bull markets in recent history. This would place Cannae at the bottom end of my Annual Doom List, comprised of equities that are not even able to outperform US 10-year Treasuries over the past decade at barely +1% per annum.
- For the 1, 3 and 5 years ending November 2025, Cannae shares had returned –15%, -19% and –54% while the S&P 500 has returned 13%, 77% and 91% respectively.
- The discount as of today (11/11/25) is back over -40% at the time of writing, which is right in line with the historical average. So, despite the company’s new ‘strategic plan’ and repurchasing a substantial amount of its stock, the market infers that the issues are more deeply rooted in misalignment of the board and management and distrust that shareholder interests will be protected.
Misaligned incentives and the case for stronger corporate governance
- During the same period of persistent underperformance, the Chief Executive Officer, Mr. Foley, was awarded tens of millions of dollars as he transitioned to Vice Chairman after receiving a new employment agreement from the Board only two months prior. As a part of which, his stock immediately vested, and he was granted the right to sell half of his holdings back to the company at a 20% premium or more starting in January 2026.
- Once Cannae realized there was an activist investor questioning the Company’s performance, they increased the size of its Board to 12 by appointing two new directors, a rather large board for a Company with a market cap now of less than $1 billion. This was all done at the same time Mr. Mr. Foley exercised his right to his freshly granted severance package. Cannae also concurrently altered the terms of the director’s equity incentive awards to provide for immediate vesting if any sitting directors were not re-elected.
- Cannae’s Board appointed Doug Ammerman as the new Chairman who it deems to be independent, but it appears that he has served on the boards of several other companies with Mr. Foley going back decades.
- Cannae is proposing a vote to remove the classified board it has had since inception; however, Carronade claims that this maneuver by the Company was only after they had requested that specific governance improvement in earlier settlement discussions.
- Cannae is sticking to its stated strategy of investing more in private companies despite shareholder sentiments, which will result in a less liquid and transparent portfolio
- Despite Cannae’s meaningful return of capital to date from share buybacks, dividends, and debt reduction, the discount to NAV has not improved at all, suggesting that this value lever is not enough to improve performance on its own; and
- As a result, Cannae’s shareholder return performance continues to languish.
Will the Big Two respond?
As of 11/11/25 and S&P’s Capital IQ database, BlackRock owns 11.38% of Cannae and Vanguard owns 10.30%. In essence, these two institutions control a staggering 21% of the voting power in the firm and hence can help elect directors more aligned with shareholders’ interests.
The current situation at Cannae fails to meet the stewardship guidelines that the largest investors deem to be fundamental to responsible corporate governance. Cannae’s largest shareholders now have a real opportunity to effect meaningful changes that could not only enhance corporate governance practices but improve long-term financial outcomes. Will these institutions vote with the activist slate of directors and against firm management in December? If not now, when?