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The rise of passive investors as a corporate governance force

Joe Mont | January 23, 2018

A dramatic evolution is underway in terms of how shareholders influence the strategy and social responsibility of the companies in which they invest.

In the not so distant past, investor activism fell on the activist side of the equation, with the likes of Carl Icahn and Nelson Peltz deploying the clout earned by large holdings to demand strategy and leadership changes, with an eye toward improving returns.

The latest trend: the rise of the passive investor. The average investor—far removed from the world of corporate raiders—may be saving for retirement, or bolstering their income stream, by putting their money in index funds, rather than specific companies. Unlike traditional activist investors, they supplement their hopes for short-term returns with a desire for long-term strategy. With strength in numbers, they also want “good,” if not “great” companies with diverse boards, an environmental conscience, and an appreciation for their workforce.

A leading...

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