Corporate Governance

Professor Bainbridge thinks that institutional investors are not the saviors of corporate governance.

In sum, if separation of ownership and control is a problem in search of a solution, encouraging large financial intermediaries to evolve and to take an active corporate governance role simply moves the problem back a step: it does not solve it.

He has a good point. I've said before that shareholders, particularly large institutions, need to step up to the plate and keep an eye on management. But I think Bainbridge is right, they have no more incentive to do it than anyone else, as long as the stock price goes up.

I think business is this wonderful, fascinating, complex world that people should participate in simply for the fun of it, and I can't believe people want to lie, cheat, and steal because that is no way to win. That is why it pains me to see so many shareholders and executives obsessed with nothing but the stock price. It's like a minster focusing only on how many people come to his church, or a basketball player who doesn't even care if his team wins, as long as he leads the league in scoring. Some goals are bigger than the individual. If you focus on the stock price, you will be tempted to manipulate it with accounting tricks or other bad business practices. If you focus on running the business to the best of your ability, then the stock price will take care of itself.

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