b'The word shareholders evokes images of mom-and-pop investors saving for their retirement or their childrens college tuition. Individual investors do participate directly in the market, but they are mostly passive and unorganized and their role has diminished in recent years. The largest and most influential shareholders today are institutionsincluding pension funds, mutual funds, private investment (or hedge) funds, endowments and sovereign wealth funds. . . The influence of money managers, mutual funds and hedge funds (and those intermediaries who provide them capital) who focus on short-term stock price performance, and/or favor high-leverage and high-risk corporate strategies designed to produce high short-term returns, presents at least three problems: First, high rates of portfolio turnover harm ultimate \x07investors returns, since the costs associated with frequent trading can significantly erode gains.Second, fund managers with a primary focus on short-term \x07trading gains have little reason to care about long-term corporate performance or externalities, and so are unlikely to exercise a positive role in promoting corporate policies, including appropriate proxy voting and corporate gover-nance policies, that are beneficial and sustainable in the long term. Risk-taking is an essential underpinning of our capitalist system, but the consequences to the corporation, and the economy, of high-risk strategies designed exclu-sively to produce high returns in the short run is evident in recent market failures. \x07 Third, the focus of some short-term investors on quarterly earnings and other short-term metrics can harm the interests of shareholders seeking long-term growth and sustainable earnings, if managers and boards pursue strategies simply to satisfy those short-term investors. This, in turn, may put a corporations future at risk. If corporate law or other public policy mechanisms grant investors additional rights, we believe it is vital that all institutional investors and related intermediaries be properly incentivized to focus on the interest of promoting sustainable, long-term growth.96'