Institutional Investors and Corporate Governance.

• Author: Regan, Edward V.

Carolyn Brancato is trying to put me out of business! I frequently lecture on the growth and activities of institutional investors. Now Dr. Brancato's book, "Institutional Investors and Corporate Governance: Best Practices for Increasing Corporate Value," comes along and gives us a full history on this subject - how these investors impact, in important ways, American businesses.

She starts the journey with the initial angry reaction of the California Public Employees' Retirement System (CalPERS) to a 1984 greenmail payment by Walt Disney Co. (which presumably initiated Disney's habit of writing mega-checks to those with weak claims) and winds up by showing how labor union pension funds became authors of highly sophisticated proxy resolutions. In between are the details of corporate pension funds becoming voting activists and the continuing saga of antitakeover devices, particularly poison pills.

She demolishes the myth that most pension funds are short-term investors, demonstrating, among other things, the funds' support for R&D and new product investments. On the other hand, readers who believe high turnover rates translate into pressure for short-term results might want to examine her charts on the trading patterns of institutional investors.

The current meeting ground - or mantra, really - of investors and businesses is shareholder value. She offers, for the first time, a full report on a developing consensus that can expand the parameters of "shareholder value." Picking up from efforts of national accounting and financial management groups, Dr. Brancato worked on the concept of "non-financial" measures of corporate performance for the U.S. Competitiveness Policy Council and has continued this work as a major project for The Conference Board, where since 1993 she has been research director for corporate governance and strategy.

A particular corporation's record of "customer satisfaction," "employee satisfaction," and "quality of output," when objectively measured and benchmarked against an appropriate industry standard, can provide a continuity of interest for both the corporation and investor. It will offer both a CFO...