Exit, Control, and Politics: Structural Power and Corporate Governance under Asset Manager Capitalism*

• Author: Benjamin Braun
• DOI: http://doi.org/10.1177/00323292221126262
• Published date: 01 December 2022
• Date: 01 December 2022
• Subject Matter: Articles

Exit, Control, and Politics:

Structural Power and

Corporate Governance under

Asset Manager Capitalism*

Benjamin Braun

Max Planck Institute for the Study of Societies

Abstract

The power of f‌inance vis-à-vis the nonf‌inancial sector is changing. Macroeconomic

developments and f‌inancial innovations have reduced f‌inancial actors’exit options,

thus diminishing exit-based structural power. At the same time, shareholdings have

become more concentrated in the hands of large asset managers, thus increasing

control-based power. This article documents these trends, before examining whether

asset managers wield their power and why, despite being universal shareholders, they

have not steered corporate behavior toward decarbonization. Rather than assuming

orderly, good-faith interactions between shareholders and managers, this article

argues that in the United States today, political considerations govern the use of con-

trol-based power. Asset managers’corporate governance policies are subservient to

the—increasingly inconsistent—goals of maximizing assets under management while

avoiding regulatory backlash. Unlike exit-based power, control-based power is con-

strained by being highly visible and, therefore, easily politicized.

Keywords

shareholder primacy, universal owners, index funds, climate change, greenwashing

Corresponding Author:

Benjamin Braun, Max Planck Institute for the Study of Societies, Paulstr. 3, 50676 Cologne, Germany.

Email: bb@mpifg.de

*This special issue of Politics & Society titled “The Structural Power of Finance Meets Financialization”fea-

tures an introduction by Florence Dafe, Sandy Brian Hager, Natalya Naqvi, and Leon Wansleben and f‌ive

articles that were presented as part of the workshop series held at and funded by the Department of

International Relations, London School of Economics, November 2019, organized by Natalya Naqvi and

Florence Dafe, and at the Max Planck Institute, Cologne, June 2021, organized by Florence Dafe, Sandy Brian

Hager, Natalya Naqvi, and Leon Wansleben.

Article

Politics & Society

2022, Vol. 50(4) 630–654

© The Author(s) 2022

Article reuse guidelines:

sagepub.com/journals-permissions

DOI: 10.1177/00323292221126262

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The structural power of capital is conventionally thought of as a function of its ability

to threaten to exit f‌irms, sectors, or entire countries. This holds for business in general,

and for f‌inance in particular.

1

Much of the literature has focused on the structural power

of capital vis-à-vis the state, but relationships of structural power exist among private

economic actors, too.

2

In particular, f‌inancialized economies offer a variety of channels

through which the f‌inancial sector exercises power vis-à-vis the nonf‌inancial corporate

sector. The chief example is the structural power of shareholders in corporate gover-

nance, the paradigmatic actor being the “impatient,”exit-happy institutional investors

that rose to dominance in the 1990s.

3

This article argues that the mechanism underpinning the power of f‌inance vis-à-vis

the nonf‌inancial sector has changed. The argument comes in three parts. First, both

macroeconomic developments and f‌inancial innovations have diminished f‌inanciers’

exit-based structural power vis-à-vis the nonf‌inancial corporate sector. Second, in

the publicly listed corporate sector, this has been compensated for by a steady increase

in control-based power, exercised through large, illiquid equity stakes held by asset

managers. Control-based power arises from capitalism’s tendency toward what

Hilferding called f‌inance capital and it could, in principle, be construed as a different

form of structural power. For reasons of conceptual clarity, however, this article will

distinguish simply between control-based power and exit-based power, the latter

being the conventional def‌inition of structural power.

Does the shift from exit to control impact f‌inancial actors’ability to exercise their

power, or the goals they pursue? Here, prevailing understandings of corporate gover-

nance—inspired by Berle and Means, Hirschman, and agency theory—fall short

because they theorize the interaction between shareholders and managers in isolation.

Instead—and this is the third argument—the largest asset managers are engaged in a

multilevel game that, besides corporate governance, also comprises regulatory politics

and the market for asset management services. In this multilevel game, the largest

shareholders face constraints on their power that are new, and specif‌ic to asset

manager capitalism: Whereas the strength of exit-based structural power was enhanced

by its depoliticized nature, control-based power is inherently more visible, and thus

more easily contested and politicized.

4

The nature of the power of f‌inance is a key question for the political economy of

capitalism and—because of the f‌inancialization of household wealth—inequality.

5

The need to rethink this power arises from the ongoing transformation of the f‌inancial

sector. As the f‌inancing function of the f‌inancial system has been superseded by the

wealth-preservation—or asset management—function, power has shifted from banks

to institutional capital pools. The latter category has steadily expanded and today

includes asset owners, such as insurers, pension funds, and sovereign wealth funds,

as well as asset management companies. Supported by a broader “wealth defence

industry”of lawyers and accountants, these asset managers constantly reorganize eco-

nomic activity with the goal of increasing f‌inancial returns.

6

This reorganization takes

different forms in different segments of the economy. Outside the realm of publicly

listed corporations, alternative asset managers have pushed f‌inancialization by

making ever new areas of economic activity accessible for f‌inancial investment.

Venture capital f‌irms groom startup companies, while private equity f‌irms turn

Braun 631