Bebchuk’s study of index fund stewardship wins prizes from ECGI and IRRC

The European Corporate Governance Institute has announced that its 2019 prize for best working paper in law will be awarded to a paper by Harvard Law School Professor Lucian Bebchuk LL.M. ’80 S.J.D. ’84. The ECGI’s Cleary Gottlieb Steen Hamilton Prize is awarded for the best paper in the ECGI Law Working Paper Series, and carries with it a cash award of EUR 5,000.

The prize was given for a paper, co-authored by Bebchuk and Boston University Professor Scott Hirst LL.M. ’01 S.J.D. ’16, titled “Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy.” According to the ECGI’s announcement of the prize, “[t]he jury’s selection [of the Bebchuk & Hirst article] for the prize reflects the importance of this paper’s contribution to one of the key debates in today’s corporate governance.”

Their paper earlier won the IRRC Institute prize, which recognizes research that examines the interaction between the real economy and investment theory. The IRRC Institute’s prize carried with it a cash award of $10,000.

Bebchuk and Hirst’s winning academic research paper will be published in the December 2019 issue of the Columbia Law Review.

According to the ECGI’s announcement, Bebchuk and Hirst’s paper “provides a comprehensive theoretical, empirical and policy analysis of passive investment funds, which have become a central player both in the US and elsewhere. Due to agency problems, the paper shows, the managers of passive funds have significant incentives to under-invest in stewardship, as well as to defer excessively to corporate managers, relative to what would best serve the funds’ beneficial investors. The paper also provides detailed evidence regarding the stewardship activities of passive funds, puts forward a number of policy proposals for improving these activities, and discusses the implications of its agency-costs analysis for key corporate governance debates.”

Their paper is part of a larger ongoing project on stewardship by index funds and other institutional investors. The paper builds on an analytical framework for understanding the monitoring and engagement decisions made by index funds put forward in a 2017 article, “The Agency Problems of Institutional Investors,” by Bebchuk, Hirst, and HLS Professor Alma Cohen.