Shareholder rights to go step further New target: Funds, other big investors


One of the founding fathers of the shareholder rights movement has found a new target: shareholders, or at least the class of big holders known as institutional investors.

Ira M. Millstein, founder of the Institutional Investor Project at bTC Columbia University and a New York attorney, said his project, which helped begin the shareholder rights movement that has shaken up Corporate America, would now examine the ethics and policies of major institutional shareholders -- corporate and public pension funds, bank trust departments, insurance companies and mutual funds.

Collectively, this group owns about $3 trillion in American stocks, or more than 50 percent of all the shares of the nation's publicly held corporations. Institutional investors' financial power has been steadily growing as stock holdings by individual investors continue to decline and pension funds have replaced individuals as the biggest buyers of corporate stocks.

But only a handful of these large investors -- a small number of public funds that represent state and municipal employees and teachers -- have asserted their rights as corporate owners and demanded a larger say in board room matters. In recent months, their pressure has helped oust top executives at General Motors, IBM and Westinghouse Electric and has brought more outside directors to corporate boards.

These institutions have also raised questions about high executive compensation at underperforming companies. Yet, as this effort unfolded, the majority of institutional investors remained on the sidelines. And some even opposed the movement.

"For years, we have been studying boards and managers," said Mr. Millstein, a partner at the law firm Weil, Gotshal & Manges, at a New York conference last week sponsored by the Columbia project. "Now it is time for the shareholders and institutions to be studied. We know little or nothing about how these major investor types exercise their shareholding responsibilities. To whom are these financial institutions accountable? Who is watching the watchers? Anyone?"

Mr. Millstein's remarks were praised by many of the shareholder advocates attending the conference, who say they are tiring of leading the charge alone.

"His ideas are excellent," said Dale Hanson, chief executive of the California Public Employees Retirement System, which has $73 billion in investments and is the nation's largest and most active pension fund.

The California fund, known as Calpers, owns stock in more than a thousand companies. It has so much money to invest that as a practical matter it cannot quickly sell its shares in underperforming companies. In most companies, Calpers owns so many shares that a selloff could cause the stock to crater.

"I don't see the corporate funds involved in any way," Mr. Hanson said. "You can count on your fingers and toes who are active shareholders and not one is a corporate fund. What does it take to get them to become more active? Look at AT&T.; Their pension fund holds more than 2,000 stocks and they have shown no interest in corporate governance."

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