JOSEPH CAMPBELL, The University of Sydney Law School
Email: j.campbell@sydney.edu.au

Part 1 summarises the present status as a matter of precedent in Australia of the general law rule that a fiduciary not be in a situation of conflict, the meaning of being “in a situation of conflict�, and the recognised circumstances in which there is an exception to the rule. It also criticises the application of the rule to a superannuation trustee in Jones v AMP Perpetual Trustee Co NZ Ltd . Part 2 considers the relationship of the pre-existing general law and statute law governing trusts to the provisions of the Superannuation Industry (Supervision) Act 1993 (“SIS Act�). Part 3 considers the effect of the initial introduction of the SIS Act on the application of the no-conflicts rule to superannuation trusts. Part 4 considers how the replacement of the original statutory covenants in the SIS Act with a set that included express obligations concerning conflicts affects the possible application of the general law no-conflicts rule. It argues that it is still possible, in some circumstances, for the general law no-conflicts rule to apply, and considers the limitations on now amending a trust deed that did not already exclude the no-conflicts duty to amend or limit that duty. Part 4 also considers various aspects of the construction and practical application of the new covenants concerning conflicts, including the role of the prudential standards, and some other statutory amendments that came into operation in 2013 and 2019 that bear upon a trustee’s actions in a situation of conflict. Part 5 provides several miscellaneous examples, discussed with particular reference to outsourcing, of principles that do not mention the word “conflict� but that could need to be taken into account when a superannuation trustee is in a situation of conflict.

ROBERT FLANNIGAN, University of Saskatchewan
Email: R.Flannigan@usask.ca

The principle that agents are status fiduciaries does not apply to stock brokers in Canada. Though brokers are agents with respect to their trading function, the Supreme Court has said that their agent status does not make them accountable as status fiduciaries. I will explain how that mutation developed. I will show that the Supreme Court misconstrued the prior law, and that there is no present justification for the lesser accountability of stock brokers.

CHIOMA ADIELE, Western University
Email: Cadiele@uwo.ca

There is no direct duty owed by directors who are the human agents of corporations to creditors as this duty is owed to the corporation alone. The courts have recognized that a duty of care may be owed to creditors. However, the scope of this duty of care is limited due to the broad interpretation the Canadian courts have accorded the business judgment rule. This makes it difficult or almost impossible for creditors to challenge the acts of directors so long as the directors claim to have acted reasonably and in the best interest of the corporation. This paper argues that although the courts have attempted to establish a broad and flexible principle to accommodate creditors, the principles are either too vague or insufficient to adequately protect creditors of financially distressed corporations.

BERNARD S. SHARFMAN, RealClearFoundation
Email: bernardsharfman@gmail.com

The focus of this Article is on the agency costs that may be created by the empty voting of investment advisers to index funds and how they can be mitigated so as to protect the value of private employee pension benefit plans. This Article focuses on BlackRock because it has taken a leadership role in the leveraging of its delegated voting authority. Therefore, the issue I address in this white paper is whether the fiduciary duties of a plan manager of an “employee pension benefit plan,� as authorized under the Employee Retirement Income Security Act of 1974 (“ERISA�), requires it to investigate BlackRock’s shareholder activism. This indirect approach is required as the fiduciary duties of ERISA do not generally extend to mutual funds and ETFs and their investment advisors.

This Article takes the position that a plan manager has a fiduciary duty, the duty of prudence, to investigate BlackRock’s shareholder activism. This duty applies not only to the BlackRock’s mutual funds or ETFs that an ERISA plan invests in but also to those BlackRock fund selections that it makes available to its participants and beneficiaries in self-directed accounts.

Given these fiduciary duties, this Article argues that if a plan manager were to investigate BlackRock’s shareholder activism, especially its engagement strategy, it would likely find it to be in conflict with the manager’s fiduciary duties. Such a finding would require a plan manager to seek out other reasonably available alternatives that is not associated with such shareholder activism.

While the focus of this Article is on BlackRock’s delegated voting authority and associated shareholder activism, it is meant to apply to any and all investment advisers who attempt to leverage their delegated voting authority for purposes of engaging in such activism. Moreover, the Department of Labor should provide guidance to plan managers on when the investment products of investment advisers with delegated voting authority need to be excluded.

This Article was presented at the George A. Leet Business Law Symposium (Case Western Reserve University School of Law) on Nov. 6, 2020.