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The concentration of public equity in the hands of just a few mutual-fund complexes has raised concerns about whether these institutions take seriously the stewardship obligations that come with the significant voting power that they have amassed. One leading theory, the agency-cost theory, is that the major fund complexes, all of which specialize in passively managed funds, lack the incentive to adequately police corporate managers on behalf of fund shareholders. Others counter that competition for mutual-fund investors provides sufficient incentive for satisfactory oversight.

I argue that neither agency costs nor competitive incentives are the primary driver of stewardship behavior. Rather, the large mutual-fund complexes act out of fear of public retribution. They recognize that failure to look like good stewards could lead to potentially costly regulations. This ‘publicness’ view stems from work that explains important aspects of securities regulation as a response to the public’s desire to impose accountability and transparency mechanisms usually associated with public bodies on powerful private institutions. This lens suggests that large mutual-fund complexes act as stewards to avoid the consequences of publicness, but does not suggest a need for reform.