Comment by _delirium

I'd make that narrower than "active shareholders". The only kinds of active shareholders who can exercise informed and effective oversight are large, professional active shareholders, who buy significant percentages of companies (enough to have a voting share that matters) and have in-house research and legal departments. Many active shareholders don't really look like that. The retail stock-picker buying stocks on ETrade isn't in a position to exercise oversight of the companies they're buying any more than they'd be if they were buying them through index funds. So I don't think much is lost in terms of corporate governance if that group of people moves from stock-picking to index funds. In principle, something could still be lost in the stock price signal if they move to index funds (a different question than corporate governance), although whether retail stock pickers, even taken collectively, are contributing anything useful to the price signal is not necessarily certain.