The rise in prominence and influence of the institutional investor over the last 30 years has been the source of great good for the American corporate scene. The modern corporate governance movement was initiated and propelled to spectacular success by the efforts of the institutional investor class. However, to the surprise of many, the power of the largest investors lately has been used in ways never contemplated a few years ago and may have a particularly negative impact of the future of our entire corporate system.

The institutions, as the agents of the investor, have become more politically oriented principals rather than the neutral, responsible stewards of other people’s assets. For boards and the investing public, this is a dangerous turn of events.

All the way back to the 1920s, in most of our largest corporations, few if any investors had a large enough position to exert much influence on corporate direction. This explains the origins of the management-appointed and -dominated board once so prevalent in corporate America. Managerial accountability was diminished, and this led to, among other things, disappointing results.

But when shareholdings reaggregated in the 1970s and ’80s in the form of large institutional holdings, these new investors, as the stewards of the capital of millions, began to press for significant changes in corporate board structure to ensure greater shareholder accountability and better corporate results.

The notion of the independent equity-holding director with significant corporate expertise was in part developed and transformed into a reality by large institutional investors. This resulted in a profound shift in the composition and function of the modern board. The active management-monitoring board became the norm and helped bolster corporate success. The investing American public owes a great debt of gratitude to these modern-day economic pioneers.

In recent years, with the rise of the social justice movement, the investing approach of a number of these large investors, particularly BlackRock, began to shift significantly. Traditionally, the polestar of investment strategy has been the creation of long-term shareholder value. Much effort was exerted to ensure that companies had appropriate accountability and took the form of demanding enhanced governance procedures at the board and managerial level. While nothing has changed outwardly in their ultimate goal, how institutional investors believe these goals should be structured and how they should be reached began to shift in the wrong direction.

The rise of the ESG investment movement is the outgrowth of this shift in approach. The mere placement of the “E” and “S” before the “G” demonstrates the priorities of those espousing this position. It is argued that the corporation is a creature and product of society in general and that businesses must be active participants in both environmental and social change. Long-term profitability and the production of good and necessary products at a fair price seems secondary to a general goal of societal “goodness.” Of course, these investors argue that changing realities should force companies to participate in this movement so that they will remain profitable long-term.

There are difficulties with this approach. Most people invest in these institutions with a simple goal in mind — appreciation of their capital to ensure a decent retirement. That is why such funds were formed to begin with.

As diverse in viewpoint as the body politic, so are the views of the investors in these funds. To use their capital to further the non-economic goals of the fund managers seems in conflict with their fiduciary obligations. The agent works for the principal, not the other way around. To suggest that the pursuit of social goals will ultimately bring investor return is simply a justification for using other people’s money to further one’s own agenda.

To focus so heavily on the social and environmental issues, on which there is little uniform agreement on appropriate definitions or goals, makes actual corporate performance objectives secondary. This creates bigger problems for the corporation and society than mere social issues. Managers and boards begin to lose that important accountability to investors for the actual “stuff” of the business — profitability and success. If that should fail, all lose, no matter how socially conscious management may be. Should returns become minimized through an accountability gap, no one will emerge satisfied.

I am not arguing against social change, only that a pension fund is the wrong vehicle to accomplish this. The rise of the institutional investor has brought great benefit. The corporate success occasioned by their influence and intervention has benefited all. Losing sight of corporate success as the goal of investing will only bring harm to corporate performance, the general economic good and create unnecessary divisions in a society desperately seeking unity.