During the 1970s and early 1980s, hundreds of institutions acquired significant stakes in the largest corporations. Emerging from the revolution is a new reality...to grow and maximize shareholder wealth.
The shift changes throughout the century went from family owned to industrial and then managerial to investor capitalism. Ordinary people have placed money in the hands of the institutional investors. Political pressure is then applied on company managers to boost productivity. When growth hits a wall due to a downturn or recession, companies are pressured to boost profits.
Healthy fortune five hundred firms are firing thousands in order to satisfy Wall Street's short-term profit agenda. The micro-managing of companies without the expertise and qualifications to do so can be counterproductive. Money managers are far removed from the daily pressures and challenges that face company management.
"Fund managers have no history to justify the exercise of increased influence on corporate management. I do not know of a single state or municipal pension that employs personnel who have a background in major corporate management....[W]e have a group of people with increasing control over the fortune 500 who have no proven skills in management, no expertise in selecting directors, no believable judgement in how much should be spent on research or marketing - in fact, no experience except that which they have accumulated controlling other people's money."
Charles Wohlstetter, vice-chairman of GTE Corporation
McDonalds has taken steps to successfully reduce institutional influence by implementing an employee stock ownership program. This ties performance to compensation. Loyal workers are more likely to vote with management on issues of importance. This allows the managers to focus on the long-term and not worry about next quarter's results. Millions of small investors are funding the invisible war for corporate change that has resulted in downsizing and workplace insecurity.
Michael Useem is a professor of management at the Wharton School and a professor of sociology at the University of Pennsylvania. He also wrote The Inner Circle, Executive Defense and Liberal Education and the Corporation.