Institutional Investing 101
FACULTY FOCUS Craig Doidge + Alexander Dyck, Professors of Finance, Rotman School of Management
KC: Describe how corporate ownership has been transformed over the last few decades by the emergence of institutional investors.
Craig Doidge: In The Modern Corporation and Private Property (1932), Berle and Means warned that with the separation of corporate ownership and control, the interests of shareholders and managers may diverge, and that “no shareholder is in the position to place important pressure upon management.”
Back when that was written, there was ‘The Corporation’ and there were a bunch of passive shareholders, and their paths rarely crossed. The picture is much more complicated today. While ‘dispersed ownership’ is still largely the case in the U.S. (and to some degree, in Canada), there are lots of large shareholders who now have significant influence on management. Of course, there are exceptions, like family firms and dual-class firms. We also now have entities like hedge funds — which have a big enough stake to get a seat at the strategy table.
Alexander Dyck: For me, the biggest change from the time when Berle and Means were writing is the movement away from
