Two Challenges for Fiduciary Capitalism

Abstract

The modern institutional trustee in its incarnation as majority owner of American business has conflicts of interest of debilitating proportions. Notwithstanding the inveterate and unchanging rigour of trust law requiring the fiduciary to administer assets "for the exclusive benefit of plan participants", today's conglomerate - understandably enough in a world where there is no enforcement - persistently favours its own interest in pleasing present and potential customers. There has been no enforcement of breach of fiduciary obligations either by the executive or judicial branches of government. In light of the trend of some courts towards the Law & Economics policy of "efficient compliance", there must be some doubt as to whether courts will require compliance with trust law.

What has emerged is a badly crippled owner. Enforceability of the trust promise is what is required for the concept of "fiduciary ownership" to flower.

Ironically, casting the majority owner of public companies in trust mode has twice cursed the beneficiaries. On the one hand, the trustees made extensive use of trust assets to protect themselves against any possibility of liability by hiring "consultants", the sum of whose contribution to the economic welfare of participants is highly problematic. Their real value is in providing trustees defence against any claim of negligence. On the other hand, trustees, with "no skin in the game" were motivated to adopt the most minimalist policies of investment, thus ensuring mediocre results. The only fiduciaries, largely public employee pension plans, free of conflict of interest are identified with what might be styled the "anti business" end of the spectrum of ownership. Until the balance of owners participate, the promise of "fiduciary capitalism" will not be fulfilled.