How shareholder interests diverge and unite

Conference: Before moving into academic work on governance, I spent a lot of time with investor relations officers at companies in several countries in Europe, listening to their frustrations about reading the runes of sentiment from often cryptic questions from fund managers. Much has changed in recent years: the seemingly inexorable rise of private equity, the increasing dominance of passive, index-tracking funds, the decline in influence of pension funds as direct investors, not to mention the increasing consolidation of industry after industry in the hands of a decreasing number of larger companies. But some things remain: A lot of companies know little about what their investor think and plan to do. ------------ Corporate governance, viewed from the company side, is a dynamic with three elements: ethics, politics, and institutions. I’d like to focus today on the politics and specifically on the relationship, or should I say, the relationships between investors and companies. Recall for a moment the case of ExxonMobil and Engine No. 1, the industrial whale that in 2021 choked on the investment minnow. Much of the literature on corporate governance treats “investors” as a block, a single type of actor whose actions are guided by certain common or even universal motivations: Let’s call them ESG, environmental, social and governance matters; business and environmental sustainability; monitoring and control; and foremost, creation of shareholder value. Numerous studies in numerous markets have used the presence of institutional investors as an independent variable that might determine some aspect of firm performance, or perhaps moderate the influence of another one. I fear they miss the point. Others, looking at the investment industry itself, don’t make that mistake.

Dates: 11-14 September 2024

Abstract:

Before moving into academic work on governance, I spent a lot of time with investor relations officers at companies in several countries in Europe, listening to their frustrations about reading the runes of sentiment from often cryptic questions from fund managers. Much has changed in recent years: the seemingly inexorable rise of private equity, the increasing dominance of passive, index-tracking funds, the decline in influence of pension funds as direct investors, not to mention the increasing consolidation of industry after industry in the hands of a decreasing number of larger companies. But some things remain: A lot of companies know little about what their investor think and plan to do.

------------ Corporate governance, viewed from the company side, is a dynamic with three elements: ethics, politics, and institutions. I’d like to focus today on the politics and specifically on the relationship, or should I say, the relationships between investors and companies. Recall for a moment the case of ExxonMobil and Engine No. 1, the industrial whale that in 2021 choked on the investment minnow. Much of the literature on corporate governance treats “investors” as a block, a single type of actor whose actions are guided by certain common or even universal motivations: Let’s call them ESG, environmental, social and governance matters; business and environmental sustainability; monitoring and control; and foremost, creation of shareholder value. Numerous studies in numerous markets have used the presence of institutional investors as an independent variable that might determine some aspect of firm performance, or perhaps moderate the influence of another one. I fear they miss the point. Others, looking at the investment industry itself, don’t make that mistake.

Source: Manual