The Age of Institutions: Rise and Ruse?

• Author: Allan C. Hutchinson
• Pages: 177-199

177



e Ag  Istitutins:

  

t rst glance, demo cracy may seem a battle long won, but that

is only because we pay lip service to the te rm without thinking

about its meaning, let a lone trying to live by its implications .

~ Hannah Pitken and Sara Shumer

A    in share ownership by ordinary Canadia ns,

there has been a dramatic increase in the number and scope of insti-

tutional investment funds. Indeed, such funds are the primary device

through which ordinar y Canadians have entered the world of corporate

share ownership. In large part facilitated by the rise of institutional in-

vestment through pensions and mutual funds, almost half of all adult

Canadians now own shares in corporations. Much has been made of

this remarkable trend. For some, it has been heralded as the leading

edge of a popular wave that has given greater substance and credibility

to the claim that there is a genuine dimension of shareholder democ-

racy. As more and more Canadians become the shareholding owners

of corporations, that connection is supposed to reassure sceptics that

the control of corporate power is becoming more widely distributed

and exercised: the availability of such investment vehicles enables the

relatively poor and diuse sectors of the community to take a stake in

PART TWO: TAKING S TOCK

178

the stock market, which was traditionally the preserve of the privileged

and rich. For others, however, there is a certain queasiness resulting

from this spread in share ownership. Peter Drucker goes so far as to

contend that the emergence of these institutional funds has funda-

mentally altered the dynamics of the capital ist market system. Indeed,

because such funds consider themselves to be investors rather than

owners, the separation of share ownership from management control

has become an incontrovertible fact of modern corp orate life. With all

the ambivalence that comes with the term, it has been suggested that

the age of “pension fund socialism” is now upon us.

Although it is true that the rise of institutional funds has been a

signalfeatureofinvestingandshareownershipinthelastcoupleoffeatureofinvestingandshareownershipinthelastcoupleoffeature of investing and share ownership in the last couple of

decades, the eects of this development are far from clear. Indeed,

while there has been a denite broadening of the shareholding base,

with about one-third of all Canadian-based corporations being held

by institutional investors, it remains very skewed and uneven in its

distribution: participation in such funds is overwhelmingly domi-

nated by the haves rather than the have-nots (see chapter ). While the

increasing incidence of institutional investors has actually strength-

ened the ability of diuse shareholders to monitor the management

of corporations in which the funds invest, this phenomenon has also

succeeded in reinforcing the private property rationale that still tends

to underlie corporate governance (see chapter ). An unanticipated

and ignored consequence has been that the interests of stakeholders

have become even more att enuated and less relevant. Accordingly, the

rise of institutional investors may have eected a modest shi in the

demographic structure of Canadian share ownership, but it has not

brought about the fundamental transformation that some have noted

and others have championed. e basic dynamics of a capitalist mar-

ket in share ownership and corporate governance remain very much

the order of the day. While the mutual fund industry has driven a

further wedge between shareholders and managers, it has actua lly in-

creased pressure to bolster bottom-line thinking; the major rationale

for an increased and active voice by institutional investors is that it

will “increase corporate eciency and value.” In short, the contem-