Isn't it possible for the index funds to simply not wield the power they have, and abstain from every vote? I was surprised that funds that are not actively managed are still actively engaging with public companies.
Yes, but that's consistent with the passive philosophy at the heart of index investing. I was surprised that index funds had an active interest in anything beyond reducing fees to customers.
The problem is that this isn't really what the stock market is for. It has been turned into this infinite liquidity machine where ownership churns rapidly when the "point" is owning a business, stewardship of your asset, slow turnover (there isn't an easy solution because this is largely a supply situation, if you create a savings system that is based on the value of the stock market...it is hard not to end up here).
Btw, the issue with corporate governance is far broader than this too. Even before index funds, the system was totally fucked. You had boards stocked full of know-nothings with no stake in the company. Managers were already totally unaccountable, now even more so (this is why activism is taking off, the level of corporate waste/overpaying for executives is staggering).