BlackRock CEO Larry Fink during the the 79th Annual Convention of Bankers in Acapulco, Mexico, on March 11, 2016. (Pedro Pardo/AFP/Getty Images)

A Handful of Corporations Control Everything–Who Controls Them?

News analysis

Many Americans are keenly aware of the influence of transnational conglomerates clustered under monikers like “Big Oil”, “Big Tech”, and “Big Pharma.”

Their CEOs regularly reap praise and criticism for the companies’ accomplishments and transgressions.

But CEOs like Facebook’s Mark Zuckerberg and Apple’s Tim Cook are hardly sovereign masters of their companies.

Corporations are run by boards of directors and boards get appointed by shareholders. The trick is, these shareholders are not exactly who one might imagine.

Researchers from the Swiss university ETH Zurich probed 43,060 transnational corporations they were able to identify and mapped their ownership structures.

The Top

As it turned out, 737 corporations controlled 80 percent of the combined value of all the others.

Who’s on the list? As one may expect, the top names include banks, insurance companies, investment funds, and wealth managers.

These hundreds of key corporations were each connected to the average of 20 other corporations, which allowed the top players to “hold a control ten times bigger than what could be expected based on their wealth,” the researchers stated in their 2011 paper (pdf).

Who, then, owns these super-influential companies?

“About 3/4 of the ownership of firms in the core remains in the hands of firms of the core itself,” the researchers noted. “In other words, this is a tightly-knit group of corporations that cumulatively hold the majority share of each other.”

Yet the rabbit hole goes deeper still.

The Top of the Top

The researchers assumed that to control a corporation one has to hold a majority stake. In reality, many corporations are set up in such a way, that a part of its board of directors is directly appointed by the top shareholders, who usually hold nowhere near the majority stake—their share could be as low as 5 percent or even less.

In addition to the direct appointments, the top shareholders hold major sway over the vote on other board members.

Corporations this large often have thousands of shareholders, most of whom would own only fractions of a percent in shares. It’s virtually impossible for them to organize so effectively as to block board nominations supported by the top shareholders.

Who are, then, the top shareholders?

With unsurprising repetitiveness, major investment funds and wealth management companies emerge at the top. And again, these corporations also have top shareholders who hold disproportionate sway over their board appointments.

The Top of the Top of the Top

So who are their top shareholders? With ironclad regularity, these four names pop up: State Street Corporation, Vanguard Group, BlackRock, and Fidelity Investments. The “Big Invest” if you will.

These investment firms, often through intermediaries, control each other and also themselves.

BlackRock is the world’s largest investment corporation, managing assets to the tune of nearly $6.3 trillion in 2017. For comparison, the Federal Government held less than $3.5 trillion in assets in 2017.

BlackRock’s biggest shareholder, with a stake of over 21 percent, is the PNC bank. Among the bank’s top shareholders are State Street Corporation, Vanguard Group, Fidelity Investments, and… BlackRock.

BlackRock CEO Larry Fink is a lifelong Democrat. In 2013, he appointed Hillary Clinton’s confidante Cheryl Mills to the BlackRock board in a bid to secure for himself the Treasury Secretary post in the then-anticipated Clinton administration, Fox Business reported in 2014.

It was also Fink whom President Barack Obama asked to design a way out of the 2008 financial crisis. With Fink’s advice, Obama followed the much-maligned government bailouts and saw the economy linger in recession for years.

Fox reported that Fink also thought up the mortgage-backed security, the opaque investment instrument partly blamed for the 2008 housing crash.

Steering the Top

The top corporations are not controlled exclusively by each other. Many are steered by old money as well.

Fidelity Investments, for example, is controlled by the Johnson family, just as other major players have some powerful families behind them. Other behemoths, such as the Capital Group and Wellington Management are privately owned and keep a very low profile regarding their inner workings.

Why it Matters?

The fact that most of the corporate wealth is controlled by a limited group of executives shuffling board positions among themselves may be putting harmful constraints on market competition, the ETH researchers noted.

“Previous studies have shown how even small cross-shareholding structures, at a national level, can affect market competition in sectors such as airline, automobile and steel, as well as the financial one,” they wrote, noting the dearth of research into effects of power concentration at the top of the corporate ladder.

Update: The article was updated to more accurately reflect the relationship between the most powerful transnational corporations and other transnational corporations. The article was also updated to more accurately reflect Barack Obama’s relation to the post 2008 government bailouts.