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Report

Mobilizing Ownership: An Agenda for Corporate Renewal

Stephen M. Davis


Editor’s Note: This report was released in conjunction with 
an event at Brookings on The Modern Shareholder: How a Short-Term Focus is Harming U.S. Corporations.

With Barack Obama trying to paint Mitt Romney as the embodiment of ruthless capitalism, and Romney countering that the president suppresses free enterprise, Corporate America is center stage as never before in a modern US election campaign. Stephen Davis argues that in the haze of the presidential campaign season, both candidates may be missing promising policy ideas to stimulate growth and responsibility.

For as much effort as policymakers have spent modernizing corporate structures, they have devoted comparatively little attention to the institutional investors they count on to oversee the market, Davis writes. This paper explores a policy agenda that mirrors corporate governance reforms, designed to strengthen the capacity of institutional investors to act as long term owners.

Davis offers a formula for prudent stewardship in the broader capital market and “reforms that put the interests of citizen-investors first hold out the prospect of making better citizens of corporations.” Below are highlights:

  • Corporations should issue a disclosure statement which provides transparency of things like government arrangements and offers appropriate feedback channels.
  • Reforms to fiduciary duties in the capital markets by, for example, rediscovering the duty of impartiality or applying fiduciary duty to intermediaries.
  • Establishing public policy steps to US regulations of investment, which serve both corporations and savers.  Davis writes that one important question has to be answered by policy experts first: “Who should mind the industry? Oversight of long-term savings has become a regulatory orphan.”

The benefits to correcting to the world of institutional investment are numerous, Davis writes, and carry the potential of giving corporate boardrooms both capital and a license to innovate, embrace appropriate risk, and address extra-financial drivers of value creation over the long term.

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