Notes
N o t e s Chapter 1. Introduction 1. See, for example, John C. Bogle, The Battle for the Soul of Capitalism (New Haven, Conn., 2005); Gordon L. Clark, Pension Fund Capitalism (New York, 2006); Peter A. Gourevitch and James Shinn, Political Power and Corporate Control (Princeton, N.J., 2005); James P. Hawley and Andrew T. Williams, The Rise of Fiduciary Capitalism (Philadelphia, 2000); Robert A. G. Monks, The New Global Investors (Oxford, 2001); and Michael Useem, Investor Capitalism (New York, 1996). 2. Hawley and Williams. Examples of UOs are CalPERS, CalSTRS, and TIAACREF in the U.S.; USS and Hermes in the U.K.; FRR in France; and the Norway Pension Fund-Global. While there are likely hundreds of UOs globally, only a few explicitly and publicly call themselves UOs. (Those that do include CalSTRS and TIAA-CREF; USS and Hermes; the Norway Pension Fund-Global; and FRR.) 3. The conference was held on the campus of Saint Mary’s College of California. It was convened by the Elfenworks Center for the Study of Fiduciary Capitalism of Saint Mary’s College; the Millstein Center for Corporate Governance and Performance of Yale University; and the Principles of Responsible Investment. The conference was additionally funded by the IIRC Institute (for research support) and Hermes Equity Ownership Services (U.K.) (for operating expenses). Paper proposals were solicited and reviewed and some were selected by a panel of six experts, three academics and three practitioners. 4. TIAA-CREF, Responsible Investing and Corporate Governance: Lessons Learned for Shareholder from the Crises of the Last Decade, February 2010. In the U.K., Hermes Equity Ownership Services is an important exception as well, having issued a public statement on governance and risk in the late fall of 2008. Informally, many UOs have been questioning not only their risk models but also the models on which these models are built: MPT, EMH, the capital asset pricing model (CAPM), and economic general 280 Notes to Pages 10–29 equilibrium theory. Few have made these internal conversations public, nor have various institutional investor trade organizations, as of this writing, held formal discussions or panels or put these issues on their meeting agendas. This has been noted by two important U.K. government reports: ‘‘The Turner Review’’ (March 2009) and A Review of Corporate Governance in UK Banks and Other Industry Entities (‘‘Walker Report’’) (July 2009). 5. These critical studies include those by the Yale economist Robert Shiller, one of the early and most trenchant critics of the EMH and MPT in articles such as Robert J. Shiller, ‘‘Consumption, Asset Markets and Macroeconomic Fluctuations,’’ CarnegieRochester Conference Series on Public Policy, 1982, 17: pp. 203–238, and Robert J. Shiller , ‘‘From Efficient Markets Theory to Behavioral Finance,’’ Journal of Economic Perspectives , 2003, 17: pp. 83–104. For a summary of recent research in behavioral finance, see Justin Fox, The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street (New York: Harper Business, 2009), pp. 175–210, 247–264. Chapter 2. Beyond Risk 1. See Paul Mason, Meltdown: The End of the Age of Greed (London: Verso, 2009), for a detailed account of this crisis and its repercussions, notably pp. 37–55. 2. For an excellent discussion of the evolution of the principal concepts of modern portfolio theory, see Peter L. Bernstein, Capital Ideas: The Improbable Origins of Modern Wall Street (Hoboken, N.J.: John Wiley & Sons, 2005). It contains a discussion of Markowitz and diversification, pp. 41–60; a discussion of Sharpe and the relationship between risk and rewards, pp. 75–88; a discussion of the Fama and the efficient market theory, pp. 126–145; and a discussion of Black and Scholes and option pricing, pp. 203–230. 3. Justin Fox, The Myth of the Rational Market: A History of Risk, Reward, and Delusion on Wall Street (New York: HarperBusiness, 2009), p. 54. 4. Peter L. Bernstein, Capital Ideas Evolving (Hoboken, N.J.: John Wiley & Sons, 2007), pp. 37–43. 5. For a discussion of the debate between behavioral economists and advocates of the efficient market hypothesis, see Bernstein (2007), pp. 19–33, and Daniel Kahneman and Amos Tversky, ‘‘Prospect Theory: An Analysis of Decision Under Risk,’’ Econometrica March 1979: 263–292. For an extended discussion of the efficient market hypothesis and its critics, see Fox. Typical of Fox’s claims is, ‘‘As far back as the 1970s, dissident economists and finance scholars began to question this rational market theory, to expose...
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