Fighting the good fight.

• Author: Black, Bernard L.
• Position: Chairman's Agenda: Balancing Shareholder Interests - Panel discussion

Fighting The Good Fight

If only Ben Graham were still alive, he might not be so despairing of the investors' cause. There is a powerful bias toward action in the institutional investor community today. That action can manifest itself in everything from assertive communiques with management to headline-making proxy fights. But there is a quieter undercurrent of activity going on, too, which holds promise for achieving satisfying results, and that's the heightened dialogue taking place between corporate and institutional "governors" to reach a clearer understanding and appreciation of their mutual needs and wants.

One such forum for exploring the implications of a more concentrated ownership of Corporate America is the Institutional Investor Project. It was established at Columbia Law School in 1988 in collaboration with the New York Stock Exchange. An advisory board of representatives from the corporate, investment, and academic sectors guides a program of research and seminars on institutional investor issues.

For the following roundtable discussion, Directors & Boards met with a group of the Project's advisory board members and research participants to do a bit of dialoguing of our own on what kinds of Ben Graham-like intelligent action can be anticipated in the years ahead.

Directors & Boards: From your individual perspectives, what are the most important issues facing the institutional investor?

Ira Millstein: We all recognize that institutional ownership either does now, or will shortly in the future, constitute the bulk of the ownership of most major corporations. The issue that we are facing is what kind of owners they will be. Will they be responsible owners? Will they be irresponsible owners? Are they going to be short termers or long termers? Exploring the institutions' responsibility and accountability to the corporations in which they are investing is the single most important issue that we are facing.

Reginald Jones: I think the single most important issue facing the institutional investor is the proper discharge of its fiduciary relationship in gaining the optimum return for those who are beneficiaries of the funds that it is managing. Our interest in this Institutional Investor Project is to see whether we can somehow develop a relationship between the institutional investor and the corporation in which it is investing that works to the benefit of both the investor and the corporation - and to the long-term interests of both. To us, this means that you have to recognize the significance of the institutional investor as a responsible shareowner who is alert to the needs and to the potential of the corporation. Hopefully, we can find ways to enhance communications between the management and board of the corporation and the managers of the investment organizations to achieve that optimum result.

Richard Koppes: At CalPERS, it is our role, and it is our concern, to be good fiduciaries. Most institutional investors are fiduciaries of one type or another. It is our duty to be responsible owners of the shares that we have.

Elmer Johnson: If I were an institutional investor, I would be posing this question: How can I do a much better job than I have so far in serving in my proper role - namely, doing all I can as a stockholder to help create and maintain the most vibrant possible wealth-creating, job-creating institutions in our society to the end of serving my own beneficiaries? As institutional shareowners, we have not thought in nearly as broad terms as we should, have not asked the questions that we should, to that objective. Our time horizon is much too short, and we haven't thought through just how important the long-term performance of the corporation is to our own success as fiduciaries to our beneficiaries.

Louis Lowenstein: I think we take as a given the definition of fiduciary responsibility. But there is a tension in that. From the perspective of a money manager, the tension that I see is the pressure, depending on the of the institution, to achieve competitive performance. That tends to be stock market-focused. In 1987, collectively we spent $25 billion in commissions and indirect costs to do a great deal of trading of stocks, options, futures, and other securities. That was about 18% of the earnings of Corporate America that was, essentially, wasted as each of us was trying to achieve competitive performance.

Second, a major force in the 1980s was the so-called "takeover market." While investors applauded the bids, we could see in many cases that they...