Overhauling investment practices that reward short-term returns could benefit shareholders and the global economy.
While bankers and brokers remain everyone’s favorite culprits for causing the great financial crisis two years ago, a less likely suspect—the institutional-investor community—is increasingly coming under scrutiny. These investors, in particular pension funds, insurance companies, and investment-management firms, are major market players around the world. In the United Kingdom, for example, they own and manage more than 70 percent of the stock market. Now, politicians and regulators say that such institutions must share the blame for enabling the crisis through passive corporate governance and a focus on short-term returns.
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