Shareholders issued hit lists of underperforming companies, announced their own proposals, and communicated directly with management. But it didn t make sense for Calpers and other institutions to intervene in each of the thousands of companies whose stock they held. They turned instead to boards shareholders elected representatives as management watchdogs. The bottom line is long-term returns. The most active investors are pension funds with mind-boggling obligations.
Institutional investors rely on strong, independent boards to create shareholder value.
They believe strong boards will help companies correct mistakes, recover from crises, and find, support, and reward outstanding CEOs. Numerous recent examples, along with academic research, support the notion that boards can have a significant impact on stock prices. Recent research conducted by McKinsey in conjunction with Institutional Investor found that many large private money managers especially those looking for long-term value are willing to pay a higher stock price for companies with good, independent board governance. Companies that are performing well have the option of doing nothing for now but only until there is a period of poor results, a complex acquisition, or a crisis. CEOs could search for ways to thwart investors, as they did in the 1980s.