The Elfenworks Center for the Study of Fiduciary Capitalism
Overview
Corporate Governance, Fiduciary Capitalism and Universal Owners
Economic Externalities
Norm Shifts
Sustainable Economic and Social Development
Fiduciary Responsibility and Sustainability
Corporate Governance, Fiduciary Capitalism and Universal Owners
In the United States the growth of large institutional investors (public and cooperative pension funds; corporate and union pension funds; mutual funds and bank trusts) over the last 25 years has concentrated a substantial amount of corporate equity and debt in the hands of a relatively small number of fiduciary institutions. This change in the ownership structure from individuals who held about 75% of stock in the early 1970s to institutional owners which currently own almost 60% of the largest 1000 U.S. firms reflects the growth of various forms of indirect ownership (e.g., mutual funds) and beneficial claims (e.g., pension funds) in the U.S. economy. It is estimated that at least 45-50% of all Americans currently has some form of direct or indirect beneficial ownership or other financial claims linked to institutional stock ownership.
One highly significant result of this transformation since the early 1990’s has been the emergence of institutional investor activists engaged in vigorous corporate governance programs aimed at increasing the long-term value and return of their ownership assets by using a variety of techniques to pressure corporate managers to improve performance.
The beneficial claims on the assets of these fiduciary institutions are a form of indirect or mediated ownership because they represent claims to payments rather than alienable claims to the equity or debt instrument itself. Similarly, mutual funds merely represent a claim on residual gains (or losses), not on the actual stock certificate itself. Hence, ownership and indeed private property in the corporate form is rapidly being transformed into an institutional form in which agents represent agents in what can be quite long and complex chains between the firm at one end and the ultimate beneficial "owner" or claimant at the other. Property and ownership increasingly have become bureaucratic and organizational while the rights and responsibilities of operational ownership (that is, investment decisions, proxy voting, etc.) increasingly reside in the hands of professionalized management teams operating as fiduciary intermediaries. We are witnessing the rise of fiduciary capitalism.
Many of these large fiduciary institutions are universal owners. A universal owner is an institutional owner whose holdings are highly diversified and, typically, held long term. The holdings of many institutions are a significant cross section of publicly traded stock (and debt) in the economy and, therefore, have the characteristic of representing the entire economy. Because they effectively own a cross section of the economy as a whole there is a commonality between many issues of significant concern to the society as a whole and the fiduciary duty to which universal owners are legally and ethically obligated.
