The twentieth century has seen a sea change in the concentration of ownership of U.S. corporations. Early in the century Berle and Means identified the divorce of ownership from control as the central corporate governance problem, but since the 1970's ownership has been re-concentrating into the hands of fiduciary institutions ± most notably pension funds and mutual funds. By the 1990s fiduciaries collectively owned over 50% of the outstanding equity of the 1,000 largest corporations. This new pattern of ownership, fiduciary capitalism, has begun to raise important policy questions including: How can agents (fiduciaries) effectively monitor other agents (boards of directors)? What are the social implications of universal ownership where fiduciaries own substantial stakes in virtually all of the corporations in a country, and, finally, What does it mean to maximize shareholder wealth when fiduciaries are universal owners?
This special issue of "Corporate Governance" is devoted to the concept of "universal ownership" (UO) and grows out of a conference of universal owners, institutional investors, investment professionals and academics held in April 2006 at Saint Mary's College of California, under the sponsorship of the Center for the Study of Fiduciary Capitalism (A report of the conference is available at http://www.fidcap.org ). Four of the seven articles in this issue are based on papers presented at the conference, while an additional three (by Lydenberg, Syse and Gjessing, and Lippman "et al.") were written specifically for this issue. The conference purposefully developed a practitioners' perspective on universal ownership and these articles reflect this orientation, although each article in its own way breaks new ground which academics, policy researchers and practitioners can and should develop. Copyright (c) 2007 The Authors; Journal compilation (c) 2007 Blackwell Publishing Ltd.
In this paper we examine the long-term interests that large institutional owners (for example, the California Public Employees' Retirement System, Hermes, and the Universities Superannuation Scheme) have in the development of global corporate governance standards, especially as governance standards increasingly become intertwined with other standards and regime parameters involved in the globalization debates. We argue that institutional owners have a unique perspective and voice with which to contribute to the formulation of global standards in a variety of areas on the basis of their long-term financial interests. This conclusion is supported by an analytic review of the current state of global corporate governance, including multilateral initiatives (for example, the Organisation for Economic Co-operation and Development, the World Bank); an analysis of significant institutional investors, the role of various rating agencies (for example, Fitch, Moody's), the International Corporate Governance Network, and the growing role of various nongovernmental organizations (for example, the Coalition for Environmentally Responsible Economics, the Carbon Disclosure Project) in relation to corporate governance.
This article examines the significance of the change from ownership of corporate equity (and debt) primarily by individuals to about half held by institutions. Most important among these are pension funds, of which public and noncorporate funds are the focus of the article. It is argued that public and noncorporate funds play an increasingly important role in corporate governance and policy. These “fiduciary activists” are central actors in the emergence of “relationship investing” resulting in the bypassing of market mechanisms in many important instances. The article examines a variety of recent examples of political voices of these institutions, concluding there is a partial, if messy, “remarriage” between the ownership and control of the modern corporation. This implies that U.S. corporations are in a significant sense neither merely “private” capitalist enterprises, nor public either, but an emerging entity containing public and private aspects along with an emerging “civil” ownership quality (i.e., by unions and other nonstate entities).
This article presents an overview of the assumptions and unintended consequences of the widespread adoption of modern portfolio theory (MPT) in the context of the growth of large institutional investors. We examine the many so-called risk management practices and financial products that have been built on MPT since its inception in the 1950s. We argue that the very success due to its initial insights had the unintended consequence, given its widespread adoption, of contributing to the undermining the foundation of the financial system in a variety of ways. This study has relevance for both the ongoing analyses of the recent financial crisis, as well as for various existing and proposed financial reforms.
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