An Alternative Way to Let Investors Choose 

How should asset managers make decisions in today’s world? Last year, fifteen Republican state finance chiefs lambasted Larry Fink both for sacrificing the return of his investors to advance his climate agenda and for profiting from his investments in China at the expense of U.S. security. The Republicans wanted value maximization to trump climate considerations but not national security. One could easily imagine Democrats wanting the opposite. Meanwhile, the idea of separating value from values is unappealing to an increasing number of young investors, who care about what they buy, who they work for, and where they invest. Whichever way you look at it, gone are the days when asset managers could do their jobs unencumbered by moral and political considerations.

Large asset managers, like Blackrock, Vanguard, and State Street, have been quick to recognize the catch-22 they are in: good old value-maximization in the name of a restrictively understood “fiduciary interest” is no longer cutting it. But in turn any explicitly moralized or political use of their concentrated power puts a political target on their backs and subjects them to public opprobrium. Further, while asset manangers can provide expertise on how many dollars will be lost by pursuing an ethical or environment-friendly strategy, they cannot provide any insights, nor do they have any legitimacy, concerning whether the trade-off is worth it, i.e., whether the moral gains exceed the monetary losses, or whether the moral dimension trumps the financial one altogether.

One obvious way out is to offload the moral and political responsibility for value-values tradeoffs to investors themselves. In 2022, BlackRock launched Voting Choice, a program to transfer the right to cast corporate ballots from asset managers back to investors. Initially reserved for institutional investors, in 2024, this program was extended to retail investors. In 2023, Vanguard launched a similar program, which this year has expanded to 2% of its investors. State Street started a similar pilot program  in 2024.

However, all these programs are affected by significant problems. First, the options themselves remain defined and shaped by asset managers, thus only part of the decision is outsourced. Second, it is impractical for small investors to vote on every resolution involving the 500 companies underlying the S&P 500 index. Thus, the funds offer investors a limited set of choices based on either companies’ management recommendations or proxy advisors’ guidelines. Finally, the take-up rate has been modest. The situation may improve over time as more bespoke guidelines become available, but there remains the concern that a majority of investors will be too busy to choose among the options offered, leaving the final decision once more in the hands of asset managers.

We think there is a better way, and it builds on a political science idea that is gaining momentum: citizens’ assemblies. Citizens’ assemblies are relatively large bodies of individuals chosen at random (technically through stratified random sampling) from the larger population. Think of very large juries aiming to capture the full diversity of a population and, in the ideal scenario, offering an accurate demographic mini-portrait of it. They are typically convened to deliberate at length about and come up with policy recommendations on topics ranging from abortion and end-of-life issues to climate justice, electoral law, and urban planning. Governments started experimenting with citizens’ assemblies in the context of the widely noted “crisis of democracy” as a way to regain the trust of their populations and add democratic legitimacy to the policy-making process.

We propose to apply this idea to investors. We claim that a legitimate, politically uncontentious, and very practical way to settle the value-values tradeoff is to let a representative sample of investors deliberate on ethical guidelines via an investor assembly.

A citizens’ assembly of investors—or investor assembly for short—could occur at the company or mutual fund levels. Since most individuals invest through mutual funds and many moral issues repeat across companies, running them at the mutual fund level seems more cost-effective.

How would an investor assembly work? A representative sample of, say, 150 investors from all the investors of the mutual fund will be drawn via a lottery. Before this lottery , each investor is offered the opportunity to opt out and choose pass-through voting instead as the way to express their views. All the remaining investors will be assigned a number of lottery tickets proportional to their investment in the fund. From this pool, 150 of these tickets will be drawn; thus, larger investors are more likely to be drawn. The sample should be appropriately stratified so that if one chosen investor decides not to participate in the assembly, we can draw a similar one instead. Importantly, the members of such assemblies are compensated for their time and expenses (to maximize take-up).

Once the investors are drawn, the representatives all have equal voting power and status in the assembly. As soon as they have been selected, each representative investor receives information about the issue(s) to be discussed and how the assembly will be organized. The number of meetings and their specific nature (offline or online) and duration may vary, but we recommend at least three meetings of at least two days each, with at least one of them taking place in person. During the process, the assembly members will receive the information they need and request, meet with experts of all kinds, and, through deliberation, come up with the guidelines they think the fund should follow. Deliberation takes place in plenaries and a variety of small groups, both facilitated by professionals. On the final weekend, the investors will vote on the set of guidelines they endorse as a group.

This idea may appear fanciful, but in early 2024 a first proof of concept was established. A Dutch pension fund organized an investor assembly to discuss responsible investments. 50 investors from the pension funds were randomly drawn and brought to the city of Utrecht for three different days, during which they approved 49 proposals for responsible investment to submit to the board. The role of that Dutch assembly was advisory. In general, we think it prudent to start with an advisory role for investor assemblies. Only with time, experience, and growing legitimacy should their decisions become binding.

The world is changing, and business as usual is no longer feasible. To maintain their freedom to operate and their independence, asset managers must open up a space for real corporate democracy and give voice over ethical decisions to their investors. This brief proposal provides a simple way to achieve this goal.