Government report on the role of institutional investors: I-A Institutional Investors Role The role of institutional investors is of course not limited to the acquisition and sale of stock and the right, in many cases to vote it. Some institutional investors make loans to companies in which they invest, or provide insurance coverage. Their representatives often sit on the companies boards of directors. Sometimes institutional investors help facilitate or block mergers. The institutional investors effect on medium-sized and smaller companies, and those companies inability to pierce through nominee accounts to communicate with their own stockholders was described to a senate subcommittee by the chairman of the Committee of Publically Owned Companies, C. V. Wood Jr., who is also President of McCulloch Oil Corporation. Speaking for the leadership of 469 companies with $43 billion in assets, 1.8 million stockholders, and 1.1 million employees, he testified that the institutional investors have run up the price of the stock of the big companies with which they have personal and business relationships. Trading in stocks of smaller and medium sized companies languishes; their stock prices sink to new lows despite good earnings. Because the market undervalues the stock, the smaller companies cannot raise stock in the market, for replacement or expansion of facilities. So they have to borrow the capital they need, increasing their debt-equity ratio to dangerous highs. They borrow at escalated interest rates from the banks which are driving them deeper into debt. They cannot break through the maze of nominee accounts held by institutional investors to communicate directly with their beneficial shareholders. As a consequence Chairman Wood testified, the smaller and medium sized U.S. Corporations have become prime targets of the foreign companies which have recently taken over U.S. companies from bases in Italy, France, Switzerland, Germany, the United Kingdom and Saudi Arabia. 1 The multiple layers of corporate management available to institutional investors present fundamental questions regarding public policy. These matters cut across the concerns of a number of different agencies and congressional committees. Together they present questions about the nature of our industrial society — how it will be directed and controlled. There is as yet no consensus regarding what additional government controls, if any, should be placed on institutional investors. Indeed, there is respectable opinion that institutional controls produce beneficial effects, such as more rational and expert market analysis, and more effective oversight of corporate management. http://www.241mumbers.com/DISCLOSURE%20OF%20CORPORATE%20OWNERSHIP.pdf Report is dated 1972 and signed: LEE METCALF, Chairman, Subcommittee on Budgeting, Management, and Expenditures. EDMUND S. MUSKIE, Chairman, Subcommittee on Intergovernmental Regulations