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Under investor scrutiny, corporate governance evolved into a crucial value generator

If you zoom from the trenches to orbital distance, it becomes clear—and striking—how corporate governance in the United States has transformed seemingly overnight. For decades, corporate governance had been little more than a code word for proxy voting, but now it has emerged as a deeper conversation about long-term value creation. This swift metamorphosis is producing a whole new species of public statements by investors. Governance professionals at corporations now face the challenge of absorbing and incorporating these into strategic thinking. Examples of what we mean in a moment.

Let’s first see what the world looked like until now. Institutional investors began to take widespread note of governance in the early- to mid-1980s, when raiders were loose in the capital market. Union and public sector funds, in particular, thought they had better look at how corporate managements were paying greenmail to entrench themselves. Then the federal government, in the form of the...

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