John Bogle on Investing: The First 50 Years

ChapterIV

AS AN INFLUENCE ON CORPORATE MANAGEMENT

ALTHOUGH IT IS manifest that the open-end investment company can never exercise control over a corporation the shares of which it holds in its portfolio, there is no reason it should refrain from exerting its influence, where deemed necessary, on corporate policy. The SEC, in its 1940 report to Congress, called on investment companies to serve

… the useful role of representatives of the great number of inarticulate and ineffective individual investors in industrial corporations in which investment companies are also interested.¹

Since they possess not only a greater knowledge of finance and management than the average stockholder, but also the financial means to make their influence effective, the mutual funds seem destined to fulfill this crucial segment of their economic role.

Control of corporations is impossible in the mutual fund field, since the Investment Company Act restricts fund holdings to ten percentum of any company's outstanding voting stock, with regard to 75% of the investment company's total assets, and control is presumed to exist when “any person (or company) … owns beneficially … more than 25% of the voting securities of a company.”² Most funds, due to conservative financial policy and, in some cases, state laws, make the 10% limit applicable to the entirety of their assets, not merely 75%. Examples of funds with this type of policy are Axe-Houghton, Affiliated, Boston, Bullock, Dividend, Fidelity, Investors ...