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How Institutional Investors Should Step Up as Owners

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

6 Pages Posted: 14 Sep 2010 Last revised: 20 May 2011

Simon C. Y. Wong

Northwestern University School of Law; London School of Economics; McKinsey & Co. Inc.

Multiple version iconThere are 2 versions of this paper

Date Written: November 11, 2010

Abstract

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).

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

JEL Classification: G22, G23, G34, G38

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: https://ssrn.com/abstract=1675443

Simon C. Y. Wong (Contact Author)

Northwestern University School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States

London School of Economics

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://www.lse.ac.uk/collections/law/staff/simon-wong.htm

McKinsey & Co. Inc. ( email )

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London, England SW1Y 4UH
United Kingdom

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