When wealth accumulates, wealth is sucked away — the end of capital concentration as proven by Savvides (2024)

BlackRock Moves Your Company’s Board of Directors — The Structure of Asset Management Capitalism Revealed by Braun (2021)

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■ Key questions

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Do you know who the largest shareholder of the stock you own is?

If it is a large KOSPI stock, it is likely that BlackRock, Vanguard, and State Street are behind it.

But what if they are not just investors but actors who directly design corporate governance?

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Braun (2021) named this structure “Asset Manager Capitalism.”

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■ Paper outline

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- Author: Benjamin Braun (Max Planck Institute for the Study of Societies)

- Source: The American Political Economy (Cambridge University Press, 2021)

- Key argument: As passive asset managers such as BlackRock, Vanguard, and State Street simultaneously became majority shareholders in major companies around the world, the central actor in corporate governance shifted from 'corporate management' to 'asset management company'.

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■ What the paper proves

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- Common ownership: The three major asset management companies (BlackRock, Vanguard, and State Street) simultaneously own virtually all of the S&P 500 companies.

- Concentration of voting rights: Due to the nature of index funds, asset managers exercise voting rights for all companies held simultaneously — selective selling is not possible.

- Reorganization of governance structure: Shift from a structure in which traditional blockholders (major shareholders) control a single company to a structure in which a few asset managers horizontally control the entire market.

- Changes in executive compensation structure: Evidence showing that corporate executive compensation and strategy decisions are influenced by the asset manager’s voting rights exercise method

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■ Connection with relational risk: The board of directors does not lie

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The macrostructure revealed by Braun appears as a specific pattern in the Korean capital market.

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① Interlocking Directorate is the direction of capital power.

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- Just as a few asset managers exert influence on the boards of directors of thousands of companies at the global level, in Korea, a few powerful people share the board of directors of dozens to hundreds of companies.

- Human Risk of Relational Risk quantifies this concurrent director network.

- Pattern of the same director appearing in multiple companies → Signal of concentration of capital power → Rise in risk index

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② The more concentrated voting rights become, the more vulnerable minority shareholders become.

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- Braun's key finding: As voting power concentration increases, management control is strengthened, but the actual influence of minority shareholders decreases.

- Korean context: Even if the largest shareholder's stake is low, actual control is maintained through the director network.

- Relational risk captures this ‘invisible power’ through the board of directors network.

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③ Passive asset management structure = global version of circular shareholding

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- Just as an index fund owns Company A, Company B, and Company C at the same time, creating an implicit relationship of interest between these companies, Korea's private CB investment power also connects companies through circular investment from A → B → C → A.

- The circular shareholding pattern captured by Funding Risk is a smaller version of the Korean version of the common ownership structure described by Braun.

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■ Comment

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Braun analyzed asset management capitalism at the macroeconomic system level.

When that system comes down to the Korean small-cap market, the same structure is repeated, just with a different name.

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A small group of people connects companies through a network of directors,

Circulate funds through CB issuance,

Transfer of control through changes in governance structure,

Only individual investors are left.

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Relational risk already sends out signals the moment this structure begins — when directors change, CBs are issued, and shareholder registers are shaken.

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This is why we track relational risk.

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■ Reference materials

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- Braun, B. (2021). Asset Manager Capitalism as a Corporate Governance Regime. In J. Hacker, A. Hertel-Fernandez, P. Pierson, & K. Thelen (Eds.), The American Political Economy. Cambridge University Press.

- RaymondsRisk White Paper v1.1: https://www.konnect-ai.net/whitepaper

- Relational Risk Blog: https://blog.naver.com/raymondsrisk