Who Owns the Private Prison Corporations?

prisoncrowdDavey D has an interesting blog post about private prisons, incarceration, and the mass media. There’s numerous excellent bits of information throughout the piece linking the criminalization and mass incarceration of people of color with the complicity of the entertainment industry.

What’s really important about this post, what I appreciate about it, is that Davey is asking some key questions about the economics of a small part of the mass incarceration phenomenon; Who owns the private prison industry? What else do they control in the corporate economy? How much power do they have to influence government policy, and the activities of other corporations?

The question of who owns the private prison industry is quite complicated, however. Davey’s post claims that there is a direct link between the owners of the mass media industry and the private prisons, and that the owners are in fact coordinating their activities to increase incarceration rates. He goes on to imply that when private prisons make profits from locking human beings up, these profits also flow to the mass media companies. The evidence Davey presents for this claim is that the same “investors” who own the private prison companies also are the largest shareholders of the big media companies.

Here’s how Davey explains it:

“According to public analysis from Bloomberg, the largest holder in Corrections Corporation of America is Vanguard Group Incorporated. Interestingly enough, Vanguard also holds considerable stake in the media giants determining this country’s culture. In fact, Vanguard is the third largest holder in both Viacom and Time Warner. Vanguard is also the third largest holder in the GEO Group, whose correctional, detention and community reentry services boast 101 facilities, approximately 73,000 beds and 18,000 employees. Second nationally only to Corrections Corporation of America, GEO’s facilities are located not only in the United States but in the United Kingdom, Australia and South Africa.
You may be thinking, “Well, Vanguard is only the third largest holder in those media conglomerates, which is no guarantee that they’re calling any shots.” Well, the number-one holder of both Viacom and Time Warner is a company called Blackrock. Blackrock is the second largest holder in Corrections Corporation of America, second only to Vanguard, and the sixth largest holder in the GEO Group.
There are many other startling overlaps in private-prison/mass-media ownership, but two underlying facts become clear very quickly: The people who own the media are the same people who own private prisons, the EXACT same people, and using one to promote the other is (or “would be,” depending on your analysis) very lucrative.”

There’s problems with these claims, especially the notion that “the people who own the media are the same people who own private prisons, the EXACT same people[.]” I doubt this, and the evidence offered above certainly does not support it.

Figuring out who is calling the shots behind the private prison industry is important, but pointing at the Vanguard Group and Blackrock isn’t going to be a very productive exercise. Neither of these companies in fact “calls the shots” for any of the corporations they invest in, even though they routinely buy what are technically controlling stakes —more than 5% of a company’s outstanding shares— in publicly traded corporations.

Vanguard and Blackrock are institutional investors. They gather billions of dollars from customers including public and corporate pension funds, foundations, non-profits, as well as hundreds of thousands of individual customers who want to purchase IRAs and 401Ks. Out of the billions of dollars they take from their innumerable customers these companies create what are called indexes by buying equities, bonds, and other securities.

The investments of Vanguard and Blackrock are not targeted at particular companies, but instead are designed to replicate, or trend slightly above, the average rates of return across broad sectors of the market. To say that Vanguard or Blackrock happen to be the “the largest holder” of a company’s stock is not particularly relevant to the question of who controlst that company, or even who it is that benefits from the economic fortunes of that company.

Vanguard and Blackrock are the largest owners of probably thousands of large, medium, and small cap companies. Money managers like Blackrock and Vanguard do not exercise any control over their investments. The traders and analysts who work at Vanguard and Blackrock do not necessarily care about what a company does or how it makes its profits. They look at companies as bundles of rates and vectors on a computer screen, plots of data that indicate rates of return on capital invested at particular points in time. They compare these metrics to other metrics in the market, and they allocate vast pools of capital into and out of thousands of particular stocks based solely on the relational value of a stock to certain benchmarks. It’s pure quantitative extraction of income from global dispersed economic activity, and it occurs on a vast scale that picks from tens of thousands of corporate stocks, bonds, and other securities using criteria that are only about the trade-offs between risks and returns on the investment of capital.

Even if we did hypothesize that Vangaurd and Blackrock’s big stakes in private prison companies are relevant in terms of control, we’d have to figure out, who owns Vanguard and Blackrock? These are companies in and of themselves with stock, and certain owners who hold significant equity stakes. However, the ownership of the corporation entities known as Vaguard and Blackrock is separate from the claims made on the investments returns of the funds administered by each company. It’s these funds, distinct legal entities, that are invested in private prison companies, among many, many other sub-sectors of the economy.

For Corrections Corporation of America, there are at least four different Vanguard funds that own chunks of the company’s stock. But within the vast portfolios of these separate Vanguard funds, CCA is a mere tiny fraction of a percent of the fund’s total investments. For example, the Vanguard Windsor II Inv fund owns CCA stock. But CCA isn’t even among the top 25 companies that the Vanguard Windsor II Inv is invested in. The fund’s top company stock picks are JP Morgan, Pfizer, Phillip Morris, Conoco Phillips, IBM, and its total holdings include a huge number of other corporations. CCA is way down on the list, lost amid an index of equities meant to track a vast swath of the global economy.

Anyway, who owns the Vanguard Windsor II Inv fund, and the other Vanguard and Blackrock funds that in turn own CCA and GEO Group stock?

The answer is that hundreds of other institutions and hundreds of thousands of individuals (mostly wealthy persons in the top income brackets) own the Vanguard and Blackrock funds that are used to buy shares of companies like GEO and CCA. So saying Vanguard owns private prisons and media companies is only saying that virtually millions of people own tiny fractional stakes in these companies through their pensions, 401Ks, ETFs, mutual funds, and other money manager products that Vanguard and Blackrock sell.

To say that because Vanguard or Blackrock funds own both private prisons and media companies means that the same people control the prisons and mass media is just plain wrong. There may be other links, but it’s not here.

All that said, perhaps it should be relevant and scandalous that Vanguard and Blackrock include private prison companies in their index funds. That prison companies are simply thought of as mundane stocks that index funds should seek exposure to should be outrageous. It’s troubling that these money managers consider private prison corporations as simply a sector of the “market.” Perhaps pensioners (including many union members and public employees), mutual fund owners, and persons with 401Ks administered by these and other big money managers should object to the inclusion of private prison companies in their investment funds.

There’s certainly a long tradition of shareholder activism to force institutional money managers to divest from companies that do particularly heinous things. The San Francisco Board of Supervisors just voted to divest from fossil fuel companies, meaning the money management firms that place the city’s cash into stock indexes and bonds will now have to tweak their offerings to delete companies like Exxon and TransCanada. There should be a similar campaign around private prisons.

To figure out who really controls the private prison companies requires a different route of analysis than simply pointing at the large institutional investors.

Those interested in tracing ownership to actual persons who own large stakes in prison companies, and who exercise control over these companies, should browse the Securities and Exchange Commission filings for both CCA and GEO.

These documents will include filings of the company’s directors and executives who own considerable stock, and who by definition call the shots. They will also mention actual concentrated outside owners who exercise some control over the policies of the companies through proxy.

Finally, there are a few big investors in the private prison companies that deserve a lot of scrutiny along the lines Davey is advocating. It appears that some of the institutional investors with big stakes in GEO and CCA are private equity firms and more boutique focused money managers. Private equity firms and boutique investment houses also collect money from outside investors, like Vanguard and Blackrock, but their pools of capital are assembled from much smaller groups of individuals, typically under 100 persons. Private equity firms usually do get very involved in the way a company is run. If people want to know who are really the concentrated owners of, and beneficiaries of the private prison boom of the last decade or so, they should try to figure out who’s behind these private equity groups.

As for a link to the media, to me that remains an open question, but it’s productive that Davey is making these kinds of assertions and making some connections between the complicated mess of dots.

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5 comments
  1. Even so…just common sense will allow one to leap to some sinister thoughts due to the fact that monied people do all that is necessary to make money. Just like the slave industry in America…..rich guys support a lot of bad but legal things to make money. Their money insulate them from being on the wrong side in the US (us) legal justice (just us) system.

  2. Brandeis Fan said:

    Thank you for the article. It helped to explain the issue.

  3. Anonymous said:

    For sure . The money that is spent could be used to help a prisoner out to a productive life not to stifle the growth. It is amazing the money used for corrupting a family instead of saving a family.
    HELP NOT HURT. IT COST LESS AND LAST LONGER. FOR INVESTORS.

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