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How Institutional Investors Should Step Up as Owners

Simon C. Y. Wong

Northwestern University School of Law; London School of Economics

November 11, 2010

The McKinsey Quarterly, September 2010 (reprinted in McKinsey on Finance, Autumn 2010)

While bankers and brokers remain everyone’s favorite culprits for causing the great financial crisis two years ago, a less likely suspect - the institutional investor community - is increasingly coming under scrutiny for passive corporate governance and a focus on short-term returns that enabled the great financial crisis.

This article argues that by rethinking their approaches to portfolio diversification, engagement with boards, and compensation, institutional investors could usher in a new ownership culture that would not only benefit their customers but also placate regulators, which are poised to intervene if voluntary progress is slow. Recommended steps include revamping performance metrics, reducing reliance on intermediaries, strengthening in-house expertise, rationalizing portfolio holdings, and refining the passive investing model.

Note: This article is drawn from a fuller piece entitled "Why Stewardship is Proving Elusive for Institutional Investors," which appeared in the July/August 2010 issue of the Butterworths Journal of International Banking and Financial Law (available at http://ssrn.com/abstract=1635662).

Number of Pages in PDF File: 6

Keywords: institutional investors, shareholder responsibility, stewardship, corporate governance

JEL Classification: G22, G23, G34, G38

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Date posted: September 14, 2010 ; Last revised: May 20, 2011

Suggested Citation

Wong, Simon C. Y., How Institutional Investors Should Step Up as Owners (November 11, 2010). The McKinsey Quarterly, September 2010 (reprinted in McKinsey on Finance, Autumn 2010). Available at SSRN: http://ssrn.com/abstract=1675443

Contact Information

Simon C. Y. Wong (Contact Author)
Northwestern University School of Law ( email )
375 E. Chicago Ave
Unit 1505
Chicago, IL 60611
United States
HOME PAGE: http://twitter.com/SimonCYWong
London School of Economics
Houghton Street
London, WC2A 2AE
United Kingdom
HOME PAGE: http://www.lse.ac.uk/collections/law/staff/simon-wong.htm
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