Copyright (c) 2002 St. John's Law Review Association
St. John's Law Review
SYMPOSIUM ENRON AND ITS AFTERMATH: WORKER OWNERSHIP THROUGH 401(K) RETIREMENT PLANS: ENRON'S CAUTIONARY TALE
76 St. John's L. Rev. 835
Peter Drucker coined the term "pension fund socialism" in 1976 to draw attention to the increasingly large percentage of United States equity capital owned by pension funds and other large institutional investors. 1 He was concerned with the implications of this phenomenon for corporate governance. He believed that these changes in the distribution of share ownership meant the final erosion of managerial accountability. Pension fund managers, focused solely on investment return, had no interest in monitoring the performance of corporate management. This development, he wrote, "makes final the divorce of traditional "ownership' from "control.'" 2
Today, of course, pension funds and other large institutions own an even larger portion of the stock of our nation's largest corporations*over half of outstanding shares. 3 For some well- known companies, aggregate institutional shareholdings can reach eighty or even ninety percent of outstanding shares. 4 Drucker's governance concerns are thus amplified. One result has been a flurry of academic debate over the possibility and desirability of "institutional investor activism" as a mechanism for enhancing management accountability to shareholders. 5
Drucker used the term "socialism" to highlight the fact that large-scale stock ownership by pension funds has effectively turned workers into owners of America's largest corporations. 6 Both private pension funds of large corporations and state-run pension systems manage trillions of dollars for the benefit of private and public-sector employees. The assets of these plans are heavily invested in publicly traded stock, so their ...
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