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A key organizational feature of large United States corporations is the separation of ownership from control. This separation creates an agency problem, that managers may run the firm in their own, rather than the shareholders' interest, choosing the quiet life over the maximization of share value. In the 1980s, corporate takeovers provided a measure of discipline by threatening poor performers with replacement by bidders who would reunite ownership and control. With the lull in takeovers in the 1990s, commentators concerned about corporate performance have turned their attention to identifying alternative mechanisms for disciplining management. The principal solution has been to call for more active monitoring of management by institutional investors. The focus has been on a subset of these investors, public pension funds (the pension funds of state and local government employees), because managers of corporate pension funds and financial institutions have other business relations with issuers that are thought to generate conflicts of interest preventing them from opposing corporate management. This Article seeks to add a dose of realism to the debate over shareholder activism in corporate governance by underscoring what was once widely recognized in the literature but of late has been overlooked: public pension funds face distinctive investment conflicts that limit the benefits of their activism.

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