The Modern Shareholder: How a Short-Term Focus is Harming U.S. Corporations

The individuals and organizations who own shares in corporations have changed radically over the past 50 years. Today the household sector holds few direct shares in corporate equities – and a significant majority of stocks are owned by institutional investors, including mutual funds, pension and retirement funds, life insurance companies, and foreign entities. It is estimated that nearly 70 percent of American stock-trading arises from companies using high-frequency trading strategies that emphasize holding stocks for very short periods of time. As a result, many current shareholders lack a long-term time horizon and prefer short-term results. This new reality makes it difficult for corporate executives to pursue strategies based on long-term welfare and growth of a company.

On June 1, the Governance Studies program at Brookings hosted a forum focused on the social, economic and political ramifications of the changed nature of corporate shareholders. A panel of experts explored how the short-term focus of shareholders and investors affects corporate behavior and government policy, how to encourage longer time horizons among shareholders and executives, and how the financialization of America’s corporations is affecting long-term development.

At the event, Stephen Davis released a paper, “Mobilizing Ownership: An Agenda for Corporate Renewal,” that explores a policy agenda that mirrors corporate governance reforms, designed to strengthen the capacity of institutional investors to act as long term owners.

Participants followed the conversation on Twitter using the hashtag #BILTD. After the program, speakers took audience questions.