An article from Sustainable Financial Markets
Posted: 20 Apr 2011 10:41 AM PDT
Catherine Howarth and Christine Berry write: There’s a fundamental inconsistency at the heart of the UK corporate governance framework. Company directors’ duties under the Companies Act are based on the concept of ‘enlightened shareholder value’: the UK government rejected stakeholder rights or prescriptive regulation and chose instead to encourage companies to take the high road, rather than the low road, to creating value for their shareholders. But, as argued in the FairPensions recently-published report, ‘Protecting our Best Interests: Rediscovering Fiduciary Obligation’ [Click Here], there’s a crucial mismatch between Companies Act policy and the perception many shareholders have that their fiduciary duties actively prohibit an enlightened investment approach.
It’s often implied that fiduciary duty begins and ends with maximising return. That is simply inaccurate. In fact, investors have a number of distinct fiduciary duties, developed over centuries of primarily judge-made law. The most fundamental of these is not the frequently-invoked ‘duty to maximise return’ (assuming such a duty even exists) but the duty of loyalty: agents must act impartially in the best interests of all their principals, and must not abuse their position for personal gain.
In any discussion of fiduciary obligation, it’s crucial to keep this fundamental principle in mind. A key question must always be: is the status quo in the beneficiaries’ interests, including those to whom obligations are owed 50 – 60 years into the future?