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20 - Fiduciary duty and the search for a shared conception of sustainable investment

Published online by Cambridge University Press:  05 April 2014

By
Gordon L. Clark
Edited by
James P. Hawley ,
Andreas G. F. Hoepner ,
Keith L. Johnson ,
Joakim Sandberg  and
Edward J. Waitzer
Gordon L. Clark
Affiliation:
University of Oxford
James P. Hawley
Affiliation:
St Mary's College, California
Andreas G. F. Hoepner
Affiliation:
ICMA Centre, Henley Business School, University of Reading
Keith L. Johnson
Affiliation:
University of Wisconsin, Madison
Joakim Sandberg
Affiliation:
University of Gothenburg
Edward J. Waitzer
Affiliation:
York University, Toronto
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Summary

Introduction

The trust is a means of conserving and transferring assets to nominated beneficiaries (Langbein 1997). Regulating the behavior of trustees, the principle of fiduciary duty governs the relationship between trustees and beneficiaries (Thomas and Hudson 2004: s. 1.56). In some jurisdictions, it also enables intermediaries to represent the interests of beneficiaries, providing the former with authority to invest on behalf of the latter. There are a variety of definitions of fiduciary duty ranging from the abstract through to the domain-specific. Atiyah (1995: 255) observed that a fiduciary relationship binds trustees to beneficiaries such that “the person in the fiduciary position is under a duty not to abuse that position, and this duty involves the duty to disclose all material facts.” Stapleton (1996: 13) noted, in relation to company directors and senior executives, being a fiduciary also involves “honesty and loyalty, and a duty of care and skill.” Langbein (2007: 1075) observed the “core fiduciary principle … is the duty of impartiality”; a rule conceived and policed so as to regulate conflicts of interest.

The chapter begins with the historical significance of fiduciary duty (see also Hawley and Williams 2001). This allows us to understand fiduciary duty in relation to functionally efficacious common law norms and conventions. Whereas some might suggest that fiduciary duty evolved as the standard of behavior because of its effectiveness in maximizing social welfare, it is important to acknowledge the idealism about past communities of practice, which is embedded in such claims. This is illustrated by a rereading of two landmark cases that effectively defined the nature and scope of fiduciary duty, relevant to investment management. I suggest that whatever its ideal conception, it has proven insufficient as the golden rule governing the trust institution. Government policies designed to define and regulate the governance of the trust institution represent attempts to solve problems evident in the practice of investment.

Type
Chapter
Information
Cambridge Handbook of Institutional Investment and Fiduciary Duty , pp. 265 - 276
Publisher: Cambridge University Press
Print publication year: 2014

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