July 1, 2016

Investment Returns In A 'Mature Capitalism' Era: What Are 'Reasonable Expectations' Today?

“Emerging out of these legal opinions and judgments is a new ‘reasonable expectations’ standard for the exercise of fiduciary duty. This new emerging view contrasts sharply with the historical view that attention to fiduciary duty could be demonstrated by engaging in a standard box-checking exercise drawn up by legal counsel.” 


Fiduciary Duty and the Einstein Test

Chapter 11 of my new book is titled “The Evolving Meaning of Fiduciary Duty”. Following the writings of Hawley, Johnson, Waitzer, and Sarro, the chapter explains that pension trustees can no longer fulfill their fiduciary duty by following the ‘box-checking’ advice of legal counsel. Instead, a ‘reasonable expectations’ doctrine is taking hold. As a practical matter, it means board members of pension organizations have to demonstrate they have thought long and hard before approving the key policies that guide the organization’s decision-making processes…..including its investment policies and return expectations. In short, it is reasonable for stakeholders in pension organizations to expect that their boards and managements think ‘long and hard’ before deciding on the organization’s investment policies, and that they are able to clearly demonstrate they did so.

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