Investors' growing disdain for actively managed mutual funds has produced a disturbing consequence: Ownership of American public companies is increasingly concentrated in the hands of just four giant index-fund managers.

Through the end of 2003, the world's four largest index-fund firms -- Barclays ( BCS), State Street ( STT), Fidelity Management and Vanguard Group -- in aggregate held an average of 12.6% of the 20 largest U.S. companies on behalf of their clients.

Together, for instance, this elite band owns 15% of IBM ( IBM), 15% of Citigroup ( C) and 14.5% of Johnson & Johnson ( JNJ).

Barclays, a British bank, has emerged as the first among near-equals. It has paired its new iShares exchange-traded funds business with its long-established pension fund indexing business to become one of the largest single holders of U.S. companies, if not the largest -- about $1 trillion worth. Fourteen of the 20 largest U.S. public companies now count Barclays as their largest institutional owner.

What Happened to Shareholders' Rights?

The concentration of ownership has unsettling implications for the corporate governance issues now grabbing investors' attention. Consider the recent shareholder vote over the chairmanship at Disney ( DIS), which counts Barclays as its top institutional investor, with a 3.5% stake.

Unlike large, U.S.-based shareholders such as the New York and California state pension funds, which held relatively meager positions in the stock, Barclays has refused to publicly reveal its vote on the Disney chairman, or any other matters. "We don't discuss how we vote before or afterward," said Barclays Global Investors spokeswoman Christine Hudacko.

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