This insightful paper by Professor Jan Simon and Ann-Sophie Kowalewski explores how shareholder engagement can preserve the collaborative spirit and long-term success of SFs amidst rapid growth and institutionalization.
The SF community is experiencing rapid growth and increasing institutionalization. This trend is evident in the rising number of SFs launched worldwide, particularly after 2013, marking a significant shift in the field’s development. The institutionalization of SFs is most pronounced in the U.S., where institutional investors are playing a larger role in capitalization tables, often reducing individual investors’ stakes. This trend is spreading internationally, as institutional investors bring stronger due diligence capabilities and board expertise.
Despite these developments, challenges arise. While the quality of searchers remains high, the influx of new players—both investors and searchers—complicates maintaining the traditional SF culture, which was originally built on close-knit, trust-based relationships. As the model scales, relationships shift from deeply embedded to more transactional, potentially weakening trust, governance, and the collaborative spirit that has historically defined the sector.
One risk is investor misalignment, leading to governance issues and principal-principal conflicts among shareholders. Traditionally, SFs have avoided agency problems due to strong alignment between CEOs and investors. However, as institutional involvement grows, maintaining this alignment becomes more difficult.
To address these challenges, the authors propose Shareholder Engagement (SE) as a tool to preserve the SF model’s culture and values. SE fosters knowledge-sharing, ethical awareness, and community-based learning, helping to sustain the integrity and effectiveness of the SF model despite its rapid expansion.
Read the full publication: https://www.iese.edu/media/research/pdfs/ST-0667-E
