Power to the Pensions
One ramification of the growth of pension plans and other institutional investors is that the managers of these funds have the ability to exercise substantial control over corporate management. Clearly, when a pension fund manager, who controls many thousands of shares, calls a corporate officer, the officer is going to listen. Evidence suggests that fund managers actively apply the power they have to influence corporate management. For example, pension funds recently defeated management sponsored antitakeover proxy proposals at Honeywell. And Texaco agreed to name a director from candidates submitted by the huge California Public Employees Retirement System. In addition, the stated mission of the Council of Institutional Investors is to “encourage trustees to take an active role in assuring that corporate actions are not taken at the expense of shareholders.” It is possible that these actions will work to benefit shareholders, who do not individually wield enough clout to exert control. However, the clout shareholders wield when their shares are placed into a fund manager’s hands may be sufficient to improve corporate management significantly.