Institutional investors consisting of insurance companies,

pension funds, investment trusts, mutual funds, and investment

management groups often hold substantial outstanding shares of
public companies. Institutional investments in the United States
have grown significantly in the past five decades and will
continue to grow as more employees participate in pension
funds.
Institutional shareholders normally monitor their holdings by
using a screening system based on financial performance (e.g.,
benchmarks), identifying problem areas and concerns, and
determining causes and effects of the problems

Institutional shareholders play an important role in corporate

governance by (1) exercising their right to elect directors, (2)
raising their concerns about the company’s governance by
either selling their shares or voicing their dissatisfaction, (3)
improving the efficiency of the capital markets by transmitting
private information they obtain from management to the
financial markets, and (4) reducing agency problems by
possessing resources and expertise to monitor the managerial
and oversight functions as well as reduce information
asymmetry between management and investors.
Financial institutions Are agents of individual shareholders
with the fiduciary duty of managing these funds for the best
interest of their individual investors (principals)
AND
own and manage public companies’ stocks, which make them
responsible for monitoring public companies’ governance

THAT creates dual responsibilities and potential for the conflict

of interests.

To ensure that institutional investors protect the interests of

their beneficiaries or trustees, they should disclose their
corporate governance and voting policies as well as potential
conflicts of interest and how they manage them.