In a time of anguish about Wall Street's seeming dominance of the newspaper business, journalists would do well to pay more attention to the huge and growing involvement of perhaps the most powerful Wall Streeters of them all: institutional investors.

Since their fiduciary duty to their clients usually translates into seeking the highest possible rate of return, these multibillion-dollar institutions -- public and private pension funds, insurance companies, banks, foundations, and endowments -- focus on increases in company earnings and, thus, higher stock prices. In the case of newspaper companies, this may mean that no matter how committed the companies are to quality journalism, they face enormous pressure to cut costs, which often means cutting staff and newshole.

And recently, with changes in certain federal regulations, the institutions have increasingly thrown their weight around. They have a lot of weight to throw. For example, Gannett's board of directors and executive officers might run the $9-billion company, but they don't own it; together, they own only 1.3 percent of Gannett's stock. The University of California, the company's largest institutional investor, owns three times that much. Over all, institutions own 72 percent of Gannett stock.

Gannett is hardly alone. Institutions own about the same percentage of Knight-Ridder and more than half the publicly traded shares of Media General, The New York Times Company, A.H. Belo, The Washington Post Company, and the Tribune Company (see table). Even companies like the Times that are controlled by family trusts, and thus immune from hostile takeovers as long as the family members remain united, rely on the market for capital to finance acquisitions, growth, and development. No company that raises money by selling stock can be entirely free from stockholder pressure. (Newhouse is privately held, so while it may have to please some bankers, it has no public investors to contend with.)

That institutional investors have found newspaper companies attractive since the companies began going public in the 1960s should be no surprise; newspapers have always performed better financially than most other businesses. In 1995, amid all the noise about rising newsprint prices, the value of newspaper-company stock increased an average 28 percent. Operating profit margins for many companies were in the 20 percent range, compared to 5.8 percent for the 400 industrial companies in the Standard & Poor's 500 Price Index.

 Until quite recently, most institutional investors tended to be passive supporters of management. Moreover, rules of the Securities and Exchange Commis-sion involving proxies -- instruments to exercise the voting rights of shareholders -- severely limited the institutions' power to influence company management. If they were really unhappy, they could vote with their feet by dumping a company's stock. But by the late 1980s institutions controlled such enormous portfolios that dumping a stock could precipitate a major market downturn affecting all their other investments.

 Then in 1992 the S.E.C., under pressure from the institutions, changed the rules to make it easier for institutions to bring their power to bear. They have been quick to do so, and are credited with (or blamed for) wielding pressure that helped remove top management from some of the largest U.S. companies, including General Motors, IBM, Kodak, and Westinghouse.

 Institutional investors prefer persuasion based on power to messy, costly proxy fights. The $100-billion California Public Employees' Retirement System (CalPERS), for example, regularly targets companies it considers underperforming. Representatives of CalPERS typically meet with the chairman or the c.e.o. to discuss their worries, which invariably have to do with matters affecting the stock price. CalPERS holds sizable positions in Gannett, Dow Jones, Knight-Ridder, The New York Times Company, Times Mirror, and the Tribune Company.

With the success of many institutions tied directly to their short-term performance, their priorities make it tough for newspaper companies to focus on long-term goals -- and thus on quality.

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