Chapter 7: Institutional Investors as Blockholders
Aviv Pichhadze INTRODUCTION 1 In describing the rise to prominence of the shareholder-oriented model of the corporate form, Hansmann and Kraakman (2004) noted, inter alia, that this process involved the diffusion of public firm ownership and the rise to prominence of the institutional investors (IIs). In the context of IIs, Hansmann and Kraakman (2004) noted that the interests of this shareholder group coincide ‘with those of public shareholders and . . . [IIs] are prepared to articulate and defend those interests’ (p. 49). In addition, they noted that ‘[t]hese institutions not only give effective voice to shareholder interests, but promote in particular the interests of dispersed public shareholders rather than those of controlling shareholders or corporate insiders’ (ibid.). Finally, in this context, they note that ‘the new activist shareholder-oriented institutions [i.e., IIs] are today acting increasingly on an international scale . . . We now have not only a common ideology supporting shareholder-oriented corporate law, but also an organized interest group . . . that is broad, diverse, and increasingly international . . .’ (ibid.). Accordingly, IIs seem to (i) have interests that coincide with the interests of the shareholder body in general in the public firm, (ii) promote dispersed ownership, and (iii) crusade for shareholder interests internationally. Hence, they play an important role in corporate governance both domestically in the US and internationally. In this chapter, I examine these three propositions. I do this against the background of Pichhadze’s Market Oriented Blockholder Model (MOBM) that shows that the new blockholder in the American public equity markets is the II...
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