December 1, 2014

The Evolving Meaning of 'Fiduciary Duty': Is Your Board Of Trustees Keeping Up?

“Years of focus on the duty of prudence by fiduciaries has generated myopic investment herding behaviors, undermined intergenerational pension equity, and disrupted attention to the duty of loyalty and impartiality….”

 From “Reclaiming Fiduciary Duty Balance”

By Hawley, Johnson, and Waitzer (2011)

 “The duty of impartiality requires fiduciaries to consider and balance the divergent interests of beneficiaries….including the intergenerational implications of their decisions….”.

 From “Reconnecting the Financial Sector and the Real Economy: A Plan for Action” By Waitzer and Sarro (2014)

Pension Boards Lag Courts in Interpreting 21st Century ‘Fiduciary Duty’

One of the most important, and possibly most underappreciated research projects funded by the Rotman International Centre for Pension Management (ICPM) over the course of the last four years was on the evolving meaning of ‘fiduciary duty’ for boards of pension organizations in the 21st Century. This work was conducted by legal scholars Jim Hawley, Keith Johnson, Doug Sarro, and Ed Waitzer. Their work led to the two articles in the Rotman International Journal of Pension Management (RIJPM) from which we quote above.1 The two quotes capture the essence of their message: pension boards lag ‘the trajectory of the law’ in their understanding of their fiduciary duties. Boards have some serious ‘catch-up’ work to do.

This Letter summarizes the conclusions of the ICPM ‘fiduciary duties’ project, and sets out a work plan for pension boards that want to keep up with the evolving meaning of ‘fiduciary duties’ in the 21st Century, rather than suffering the regret f having to play ‘catch up’ ball in possibly unpleasant circumstances a few years down the road.

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