Okay, let's unpack this. We are diving deep today
into a concept that's, well, it's one of the
most foundational ideas in all of finance and
law, the fiduciary. It's a word that sounds very
formal, very legalistic. It does. And our mission
today is really to get past that dictionary definition.
We want to understand the real weight of this
role. The responsibility that comes with it.
Exactly. We need to grasp... What this special
kind of trust actually means, why the law demands
what it calls the highest standard of care and
where the lines are drawn, especially when there's
money involved. Which is almost always the case.
And these lines get tested by those inevitable
conflicts of interest. It really is a critical
subject because even though fiduciary. Sounds
abstract. You find this relationship governing
huge parts of daily life. No, absolutely. Whether
you're dealing with a lawyer or a financial advisor
who's managing your retirement fund. Right. Or,
you know, on a much bigger scale, a corporate
director making these billion dollar decisions
for a company, even a trustee for a small family
estate. You're dealing with a fiduciary. And
I think that distinction you just hinted at is
so important. The one between, say, normal human
trust and this hard legal version of trust. It's
a world of difference. The sources are very clear.
A fiduciary relationship is a formal, legal or
ethical relationship of trust. And it's defined
by one person, the principal, being in a position
of, well. Vulnerability. Yeah. Vulnerability
is the absolute key. It's the fulcrum on which
the entire concept balances. The principle is
vesting confidence, reliance and trust in the
fiduciary seeking their help or advice. So they're
basically handing over control of their assets
or their money. They are. And that's why these
duties exist in the first place. Courts of equity
created them for a very specific reason. Yeah.
To make sure that the people managing other people's
money act only in the beneficiaries' interests.
So it's a legal doctrine specifically designed
to fight back against basic human greed and self
-interest. It is. It's a check on power. And
that connects directly to where this idea came
from historically. You mean the fact that it
wasn't born in common law, which is all about
statutes and contracts. This came from the courts
of equity. Exactly. The old court of chancery
in England, which was focused on fairness, on
conscience. Equity is what steps in when the
strict letter of the law might lead to an unfair
result. So because it's dealing with conscience,
the standard has to be incredibly high. Extremely
high. Our sources call it the highest standard
of care in all of equity or law. The fiduciary
has to be, and this is the term they use, extremely
loyal. And there's that wonderful old legal phrase
that just paints such a clear picture. Oh, it's
one of the best. That they must conduct themselves
at a level higher than that, trodden by the crowd.
It's so good. It's basically saying you have
to be better than everyone else. Yeah. It sets
the bar at total selflessness. It does. So if
that's the basic expectation, this extreme undivided
loyalty. How does the law start to break that
down? What are the specific ways that loyalty
can actually be breached? That's where we get
into part one. We have to look at the concrete
elements of that undivided loyalty and the law.
being very practical, focuses on preventing the
situations that make betrayal possible in the
first place. Right. So this overriding duty of
undivided loyalty means avoiding three core types
of conflicts. These are the traditional lines
in the sand that equity has drawn over centuries.
Three specific conflicts. So the law has become
very good at spotting the pressure points where
a fiduciary might go wrong. Very good. The first
one is the most obvious, the easiest one to grasp.
It's the conflict of duty and interest. The classic
dilemma. It's the core prohibition. A fiduciary's
personal interests cannot, under any circumstances,
clash with their duty to the principal. They
simply cannot be in a position where they might
game personally at the expense of the person
they're supposed to be protecting. Let's really
drill down on that because it can be subtle.
Say I'm an investment manager for you. I'm choosing
between two mutual funds for your portfolio,
and they're both pretty good. But one of them
pays my firm a huge kickback, and the other one
pays nothing. A classic conflict. Okay, that's
a clear breach. But what if the fund that pays
the kickback is actually... You know, slightly
better. What if it has a slightly better return
history? Am I still in breach? Yes, absolutely.
And this is what's so important to understand.
The breach exists whether or not you, the client,
actually suffered a financial loss. Really? Yes.
Equity isn't just concerned with the outcome.
It's concerned with the potential for your judgment
to be swayed. Your personal interest in that
kickback compromises your duty to give impartial
advice. That's enough. So the remedy isn't just
about paying me back if I lost money. No. The
primary remedy is about stripping you of the
profit you made from being in that conflicted
position. It's about removing the incentive to
ever let that happen again. That is incredibly
rigorous. Okay, what's the second type of conflict?
The second is the conflict of duties. So this
is when you have duties to two different people.
Exactly. It happens when a fiduciary owes a duty
to two different principles, and the interests
of those principles are at odds. It's the classic
problem of trying to serve two masters. Like
a law firm trying to represent both sides in
a divorce. Or a bank trying to advise two rival
companies in a hostile takeover bid. That's the
perfect example. You just can't give your best,
unbiased advice to both parties. You're forced
to balance opposing interests, and that's just
unacceptable under this high standard. If you
prioritize principle A, you are, by definition,
breaching your duty of loyalty to principle B.
Okay, and the third one. The no profit rule.
This one sounds like the most extreme. It is
unbelievably strict. This rule says you cannot
profit from your position as a fiduciary without
the principal's prior fully informed consent.
It's not just about, say, stealing from the account.
Not at all. And this is the part that makes it
so powerful. It includes any benefit or profit
that came about simply because of the opportunity
your role gave you, even if it seems unrelated.
So even if the principal couldn't have taken
that opportunity for themselves. Or even if they
didn't lose a single penny. Even then. The fiduciary
cannot take that profit. It's about preventing
any benefit from flowing to the fiduciary that
arises from that position of trust. It preserves
the sanctity of the relationship itself. It's
what they call a prophylactic measure, right?
Yeah. It's designed to prevent the problem before
it can even start. Exactly. But this is where
we start to see some really fascinating differences
depending on where you are in the world. It gets
into this distinction between what lawyers call
prescriptive and prescriptive duties. Okay, let's
break. that down. What's the difference? Prescriptive
duties are negative. They tell you what you cannot
do. You cannot have a conflict. You cannot profit
without consent. In a lot of places like Australia,
the duties are generally limited to just that.
So the courts there are essentially saying we
will stop you from doing wrong, but we're not
going to tell you what you must do. That's a
good way to put it. They are often reluctant
to impose positive obligations because they don't
want to interfere too much with what was agreed
in a contract. But other jurisdictions, and you
mentioned Canada, take a much broader view. They
have prescriptive duties. They do. Canada is
really notable for this. They recognize both
the negative prescriptive duties and positive
prescriptive duties. The prescriptive means the
law tells you what you must do. Right. It requires
you to take positive actions for your principle.
So, for instance, you might have a duty to actively
monitor the market for better investment opportunities
or a duty to disclose information that might
actually hurt your own position but would benefit
your client. Wow, that's a huge philosophical
difference. So if you're a financial advisor
in, say, Sydney, your main job is to avoid self
-dealing. But if you're in Toronto... You might
have a legally required duty to tell your client
that a cheaper product just hit the market, even
if it means you lose your commission. That's
the practical implication. It speaks to how far
the courts of equity are willing to step into
that commercial relationship to protect the vulnerable
party. This flexibility, the fact that the definition
can change based on the situation and the jurisdiction,
it reminds me of that. fantastic metaphor used
by the Law Commission in England and Wales. The
legal polyphila. It's perfect. It really is.
Explain what they meant. They said that fiduciary
duties can't be understood on their own. Instead,
they're like legal polyphila, that stuff you
use to patch holes in a wall. They mold themselves
flexibly around other legal structures like contract
law or tort law, and they fill in the gaps. So
when standard contract law isn't enough to fix
a deep breach of trust, equity steps in with
this higher conscience -based standard to patch
the hole. And that's exactly why courts all over
the world refuse to create a rigid checklist
definition of what a fiduciary is. If they did,
someone would invent a new financial product
tomorrow to get around it. So they develop it
case by case. Always case by case. They're always
asking the same fundamental questions. Was there
trust? Was there vulnerability? And did the person
with the power benefit unfairly? So the label
fiduciary isn't the end of the analysis. It's
really just the starting gun for a much deeper
inquiry. Which brings us directly to that famous
quote from the U .S. Supreme Court, the one that
really frames this whole area of law. The Frankfurter
test from SEC v. Chenry Corporation. It's the
perfect analytical tool. Justice Frankfurter
said, and I'm paraphrasing slightly, to say that
a man is a fiduciary only begins the analysis.
It gives direction to further inquiry. It's not
the answer. It's the beginning of the question.
Precisely. And it directs the court to ask four
very specific, very concrete questions. First,
to whom is the duty owed? Okay. Second, what
obligations does that person owe? Third, in what
way have they failed to meet those obligations?
And finally, what are the consequences of that
failure? That really frames the entire discussion
perfectly. It moves us from this abstract idea
of trust right into the nitty gritty of corporate
and personal responsibility. Here's where it
gets really interesting, because as soon as you
step into a position of corporate power, like
being a director, you are immediately wearing
that very strict fiduciary hat. And the stakes
become enormous. The rules become much more concrete
and the financial consequences are massive. And
if we want to understand corporate fiduciary
duties, especially in a global context. We really
have to start with Delaware, don't we? You have
to. Delaware is, by a huge margin, the most influential
corporate jurisdiction in the U .S. Something
like 64 % of the Fortune 500 companies are incorporated
there. So what the Delaware courts say effectively
sets the standard for big business around the
world. So what does the Delaware Chancery Court,
which is famous for this, demand from a company's
officers, directors, and controlling shareholders?
They owe three primary fiduciary duties, though,
as we'll see, the third one is increasingly being
seen as just a part of the second. Okay, let's
start with the first one, the cornerstone, the
duty of care. The duty of care is all about process.
It requires directors and officers to act on
an informed basis. So they have to do their homework.
They have to do their homework. They have to
give due consideration to all the material information
available to them. And they have to reasonably
inform themselves of the alternatives before
they make a big decision. They can rely on experts,
lawyers, accountants, but they have to do it
with a critical eye. So they can't just rubber
stamp a report from a consultant. No, they can't
be willfully blind. If a board approves a massive
merger after a five -minute meeting where they
just glance at a two -page summary, they've almost
certainly violated their duty of care. But if
they do follow that diligent process, they get
a lot of protection, right? The business judgment
rule. A huge amount of protection. The business
judgment rule is really the bedrock of American
corporate law. What does it actually do? It creates
a legal presumption that the directors acted
properly, that they were informed, that they
acted in good faith and that they honestly believed
their decision was in the company's best interest.
So it protects them from being sued just because
a business decision turned out badly. Exactly.
It's designed to shield directors from liability
for honest mistakes. It encourages them to take
calculated risks, which is essential for a dynamic
economy, without them having to fear personal
financial ruin if a risky bet doesn't pay off.
OK, that leads to the second and arguably the
most important duty, the duty of loyalty. This
is where self -interest really has to be eliminated.
It is. The duty of loyalty demands that directors
and officers put the interests of the company
and its shareholders above any personal interests.
This is the rule that prohibits self -dealing,
taking corporate opportunities for themselves,
or using inside information for personal gain.
Can you give us a more complex example, something
beyond just... you know, stealing from the company.
Sure. Imagine a director on the board of a big
company. That director is also a major shareholder
in a smaller supplier company. The director votes
to reward a massive no bid contract to their
own smaller company, even though other suppliers
might have offered better prices. Now, the director
might argue, well, my company's quality is superior,
but the conflict of loyalty is undeniable. Because
they approved an action that gave them a direct
personal benefit. A personal benefit that didn't
primarily benefit the corporation they serve.
The corporation's interest in getting the best
possible deal has to come first, period. And
then there's the third duty, the duty of good
faith, which has been a bit controversial. It
has. The duty of good faith essentially requires
directors to exercise the care and prudence that
a reasonably prudent person would. A failure
of good faith happens when they take actions
for an improper purpose, like, say, trying to
block a takeover just to save their own jobs,
or when their actions lead to grossly inequitable
results. But you mentioned that courts are now
looking at this a bit differently. That's the
modern trend, yes. Delaware courts are increasingly
folding the duty of good faith into the duty
of loyalty. Why is that? The logic is that if
a director acts in bad faith, If they consciously
disregard their duties or act for an improper
purpose, that is fundamentally an act of disloyalty
to the corporation itself. It simplifies the
analysis and focuses it squarely on the key question.
Did the director put the company first or themselves?
Now, let's contrast this with Canada. The sources
point to a really different philosophical framework
there, this tripartite duty. It's a very different
approach. Canadian corporate law has a more expansive
three -part fiduciary duty. It starts with the
same duty to the corporation, but then it specifically
adds a duty to protect shareholders from harm
and a procedural duty of fair treatment for the
interests of relevant stakeholders. Stakeholders.
So that's not just shareholders. That means employees,
communities, the environment. Exactly. It's a
much broader, more modern view than the traditional
Delaware model, which has historically focused
almost exclusively on maximizing shareholder
value. So Canadian law essentially frames the
director's duty as... in the best interests of
the corporation, viewed as a good corporate citizen.
That's the phrase, and it's a powerful one. It
mandates a responsibility that goes beyond just
the quarterly earnings report. It requires directors
to think about the long -term sustainability
and the societal impact of their company's actions.
That is a significant difference. Okay, so we've
covered the corporate world, but this concept
is everywhere. Let's just run through some of
the other relationships where the law... automatically
imposes this high standard. The list is long
and it's really instructive. The original one,
of course, is the trustee beneficiary relationship.
That's the classic model. Right. And then you
have all the professional services, lawyer client,
agent principal, executors of estates, administrators
of wills. And in the financial sector, it's not
just personal advisors. It extends to anyone
managing. Big pools of money. Yes, absolutely.
Retirement plan administrators, the people who
manage 401k plans, they owe a strict fiduciary
duty to all the workers and retirees in that
plan. These are people responsible for billions
of dollars. So the duty of care and the duty
of loyalty are critically important there. Critically.
And the concept even extends into public law,
which is fascinating. It acts as a check on government
power. The sources mention the relationship between
governments and indigenous peoples. Right, citing
cases like Seminole Nation v. United States.
The idea is that the government acts in a position
of trust regarding the nation's assets and welfare,
imposing these fiduciary -like obligations on
the state itself. It just shows how powerful
the concept is. But to really see how it's not
a one -size -fits -all rule, we have to look
at the boundary cases. The ones where one country
says, yes, this is a fiduciary relationship,
and another says, no. And the classic example
here is the doctor -patient relationship. It's
the perfect illustration of these different legal
philosophies. So in Canada. In Canada, the doctor
-patient relationship is considered fiduciary.
The physician owes that highest duty of loyalty
to their patient. But not in Australia. Not in
Australia. The Australian High Court, in a famous
case called Breen v. Williams, expressly decided
it is not a fiduciary relationship. Their argument
was that the doctor doesn't have that representative
capacity of a trustee. They're not married. managing
the patient's financial affairs. So if a doctor
in Australia breaches a patient's trust, say,
by misusing confidential information, the patient
has to sue them for normal negligence or breach
of contract. Correct. The Australian courts felt
that those existing remedies were good enough.
But think about what the Australian patient is
missing. They're missing that proactive standard.
In Canada, the patient benefits from the law
enforcing loyalty and, crucially, the disgorgement
of any profit the doctor might have made from
the breach, even if the patient didn't suffer
a measurable financial loss. Exactly. The Canadian
approach is about punishing the breach of trust
itself. The Australian patient would have to
prove quantifiable damages, which is a much,
much harder thing to do. Another fascinating
contrast is the parent -child relationship. Again,
Australian courts do not presume a fiduciary
relationship there. But the Canadian Supreme
Court did. They did. They allowed a child to
sue her father for breach of his fiduciary duties
related to an inheritance she was supposed to
receive. It shows that in Canada, the sheer vulnerability
of that relationship can be enough for a court
to impose this highest duty of trust, even within
a family. That's a profound difference. Okay,
let's touch on the edge cases in the business
world that often cause confusion. Joint ventures
and employment. Right. Most joint ventures are
just commercial agreements between two sophisticated
companies. They're operating at what's called
commercial arm's length. Meaning they're expected
to look out for their own interests. And so they're
not presumed to be fiduciary. But a fiduciary
duty can arise if the venture starts to look
more like a true partnership where one party
hands over critical assets or management control
to the other. Then a court might find that a
duty of loyalty exists. It all depends on how
much trust and reliance has been placed on one
part. Exactly. And what about employment? Generally,
no. The employment contract is not presumed to
be fiduciary. An employee owes basic duties of
loyalty and confidentiality, but they're still
allowed to have their own self -interest. They
can negotiate for a raise or plan their next
career move. But that completely flips for senior
employees, right? It does. A senior executive.
someone with high -level decision -making power,
access to trade secrets, the ability to act on
behalf of the company. They are much more likely
to be found to owe fiduciary duties. The famous
Canadian case Canadian Aeroservice LTD v. O'Malley
made it clear that senior employees can't just
seize corporate opportunities for themselves
even right after they leave the company. So the
law is there to stop them from using the privileged
position they were entrusted with to undermine
the company. Okay, so once you're in that position,
you're held to this incredibly high standard.
Which brings us to the practical side of things.
Part three, what are the actual rigorous rules
of accountability that a fiduciary has to follow?
It all comes down to absolute transparency and
meticulous record keeping. For someone administering
an estate, for example, there are often formal
legal requirements. They might have to file a
fiduciary bond with the court. Which is like
an insurance policy, right? Exactly. It's a surety
bond that guarantees they'll perform their duties
faithfully. If they misappropriate funds, the
bond provides a way for the beneficiary to recover
the money. It's a financial safety net. It is.
And another fundamental requirement is preparing...
a complete inventory of all the property, usually
sworn under oath. This document establishes the
baseline. It's the official record of what the
fiduciary is responsible for protecting, and
it's what all their future actions will be measured
against. To give our listeners a real sense of
just how demanding this is, we can look at a
specific example, like the Texas Estates Code.
It lays out the accounting duties in incredible
detail. And these requirements show that this
goes way beyond just normal bookkeeping. The
goal is total, unambiguous transparency. First,
there's the duty to timely inform principle.
It says they have to inform the principle of
each action they take. Not a summary at the end
of the year, but each action. Then there's the
maintenance of records. They have to keep perfect
records of every single action or decision. And
the burden of proof is always on the fiduciary
to show that they acted properly. If their records
are sloppy, they're in trouble. And most importantly,
they have to provide a full accounting upon demand.
And this accounting has to be exhaustive. It
really does. The code is meticulous. It says
the accounting has to list receipts of principal
and income separately. It has to list all the
property with a full description and its current
value. It also requires listing all the cash
balances, where that cash is held, and every
single known liability. This level of detail
is designed to prevent any blurring of the lines
between the fiduciary's own money and the principal's
money. And then there's the final catch -all
clause, which really captures this. spirit of
equity. The legal polyphila in action. Right.
The accounting must include any other information
and facts necessary for a full and definite understanding
of the exact condition of the property. It's
an open -ended demand for total clarity. It is.
The law is not satisfied with just ticking boxes.
It demands that the fiduciary give the vulnerable
principal everything they need to truly understand
what's going on with their own assets. Let's
circle back to the no profit rule and see how
strictly the courts enforce this in practice.
This is where we see the concept of the constructive
trust being used as a really powerful tool. And
the band example from the sources is a perfect
way to illustrate it. OK, so we have two band
members. Let's call them X and Y. They're equal
partners. which means they owe fiduciary duties
to each other. Right. They're in a joint venture
that operates like a partnership. They create
some demos together. Then member X secretly takes
those demos, pitches them to a record label as
his own work, and lands an exclusive contract
with a $50 ,000 advance. And he keeps it all
secret from Y. X has clearly breached his fiduciary
duty. He used a partnership asset, the demos,
and a partnership opportunity to get a personal
benefit. He put his own interest ahead of the
duo's interest. So the court finds a breach.
What's the remedy? Does the court just punish
X and take the contract away? No, the remedy
is much more elegant than that. Equity isn't
about punishment. The court says that X holds
both the contract and the $50 ,000 in a constructive
trust for the benefit of the duo. So X becomes
a trustee. Exactly. He's not punished. He's made
a trustee. Since Y was entitled to half the benefit,
the court ensures that both X and Y get a half
share of the contract and the money. It just
restores the situation to what it should have
been if X had acted loyally in the first place.
The law isn't trying to treat X like a criminal.
It's just trying to correct the unjust enrichment
that came from his breach of trust. Precisely.
And the same logic applies to how the law now
treats secret commissions or bribes. Historically,
if a fiduciary took a bribe, the law just treated
it as a debt that they owed back to their principal.
What was the problem with that? The problem was
bankruptcy. If the fiduciary who took the bribe
went bankrupt, that bribe money was just another
asset in their general pool of assets. So the
victim, the principal, would have to get in line
with all the other creditors. Right. With the
banks, the suppliers, everyone. They might only
get back pennies on the dollar. They would effectively
lose the money that was stolen from them through
the breach of trust. So the law changed to protect
the victim. It did. Now, bribes are classified
as being held by the fiduciary on a constructive
trust for the principal from the moment they
are received. So that money is treated as belonging
to the principal all along. Which means if the
fiduciary goes bankrupt, that bribe money is
kept separate. It doesn't go into the general
pot for creditors. The principal can recover
the full amount. It just underscores how seriously
equity protects the integrity of this relationship.
That rigorous accountability then brings us to
the inevitable question. What happens when the
trust is broken? Let's talk about breaches, how
fiduciaries might try to get out of trouble,
and the remedies that are available. One of the
key concepts here is something called constructive
fraud. Now, this is different from actual fraud,
which requires a deliberate intent to deceive.
So what is constructive fraud? It's defined as
conduct, which could be an act, an omission or
a concealment that a court considers fraudulent
because it gives one party an unfair advantage.
The law demands a remedy for public policy reasons,
even if the person wasn't being deliberately
dishonest. So you don't have to prove evil intent.
You just have to prove that their actions were
so contrary to their duty of loyalty that the
law should treat them as if they were dishonest.
That's the core of it. The outcome is what matters,
not the intent. And a classic example of this
is insider trading. Right. An executive uses
confidential information they got through their
role. to make a personal profit. They're using
a company asset, that information, for private
gain. That's a breach of the duty of loyalty,
and it operates as a constructive fraud on the
other shareholders. Okay, so if the standards
are this strict, is there any way for a fiduciary
to proceed in a situation with a potential conflict
without getting sued? Yes, but the path is very
narrow. The main way is through informed consent.
So full disclosure. Full and complete disclosure.
The fiduciary has to lay out the entire conflict
or the potential profit in detail and then get
the principal's fully informed, freely given
consent to go ahead. And that disclosure has
to be in plain English, I assume, not buried
in 100 pages of legalese. It has to be understandable
to the person you're disclosing to. The Australian
case, Farrah Constructions, made it clear that
the level of disclosure depends on the sophistication
of the principal. What you need to tell a big
institutional investor is very different from
what you need to tell an elderly person trusting
you with their life savings. People also try
to use exclusion clauses in contracts, right?
Trying to get out of these duties before they
even start. They do. And in some very sophisticated
commercial deals between powerful parties, courts
have allowed clauses that limit or exclude some
fiduciary obligations. The assumption is that
both parties know exactly what they're doing.
But there's a line you absolutely cannot cross.
A limit to what you can exclude. There is. This
was established in the landmark English case
of Armitage v. Nurse. It's the firewall that
protects the entire concept. And what is that
limit? You absolutely cannot under any circumstances
use an exclusion clause to escape liability for
your own fraud or dishonesty. You can contract
out of liability for negligence, maybe even gross
incompetence, but you cannot contract out of
the core irreducible duty to act honestly and
in good faith. So you can't get a license to
be dishonest. Equity will never allow that. It's
the non -negotiable core of the entire relationship.
OK, so a breach has happened. We talked about
the constructive trust. What if the gain is harder
to pin down? Then the court can order an account
of profits. This is used when the breach was
ongoing, like that senior employee secretly running
a competing side business for years. The court
will force the fiduciary to hand over all the
profit they made from that breach. But the courts
can be fair about this. If the fiduciary put
in real work to make that profit, even if it
was wrongful, they might get something for their
effort. That's a crucial nuance. The court might
grant them an allowance for their skill and labor.
The goal is to strip them of their unjust enrichment,
not to punish them excessively or ignore the
genuine work they might have put in. And finally,
there are just straight up compensatory damages.
Yes. This is a more modern development. Historically,
courts of equity couldn't award damages, but
now they can. So a principal can sue for the
direct financial loss they suffered because of
the breach, especially if calculating an account
of profits is just too complicated. As everything
in our world gets more complex, this standard
has to evolve with it. Let's spend some real
time on how this idea is adapting to the 21st
century, especially with ESG and pension funds.
The 2008 financial crisis was a huge turning
point here. After 2008, you see this major trend
of pension fund trustees starting to reassert
their fiduciary powers much more aggressively.
They realized they had been too passive. Way
too passive. They had been absentee landlords,
just trusting corporate management. After the
crisis, they became much more active in corporate
governance, demanding accountability from the
companies their funds were invested in. And that
activism led directly into the huge debate around
environmental, social and governance or ESG investing.
For years, the big question was. Does considering
something like climate risk violate your fiduciary
duty to just maximize financial returns? That
debate is for the most part over. And that's
largely thanks to the work of the fiduciary duty
in the 21st century program, which was led by
the U .N. What was their big finding? Their 2015
report was a landmark. It concluded very clearly
that failing to consider all long term investment
value drivers, including ESG issues, is a failure
of fiduciary duty. Wow. So it completely flipped
the script. It did. The argument is that these
factors are not just nice to have ethical concerns.
They are material financial risks and opportunities.
So if I'm a pension fund trustee. And I invest
in a company whose entire business model depends
on fossil fuels. But I don't bother to analyze
the risk of future carbon taxes or stranded assets.
Then you are failing in your duty of care. You
are not acting on a fully informed basis. Climate
risk, supply chain labor issues, corporate corruption.
These are all things that can have a massive
impact on the long -term value of an asset. Ignoring
them isn't being a good fiduciary. It's being
negligent. And this is now driving a real global
shift in policy. It is. The program is pushing
for these ideas to be embedded in market regulations
around the world. In Europe, it's already translated
into hard law. The debate has moved from if we
should consider ESG to how we can best measure
and integrate it. The U .S. is still a bit of
a battleground on this, isn't it? It is. The
tension there revolves around the very narrowest
interpretation of fiduciary duty. The question
is whether considering anything other than pure
financial return is a breach. So, for example,
if a union pension fund decides to invest in
companies that support union labor, some would
argue that's a breach of duty if a non -union
company offered a slightly higher potential return.
That's the heart of the debate. It's a clash
between a pure shareholder primacy view versus
a broader stakeholder view that considers the
well -being of the beneficiaries themselves.
While the global trend is clear, the U .S. is
still grappling with these fundamental questions.
It really shows how this legal polyphila is constantly
being stretched and reshaped by modern economic
and political pressures. That really does bring
everything full circle. It shows this isn't some
dusty old legal concept. It's a living principle
that's right at the heart of today's biggest
debates. So what does this all mean? It means
that the fiduciary concept is this incredibly
powerful, adaptable, high stakes contract of
undivided loyalty. It cuts across every part
of our economy from a simple family trust to
the boardroom of a global corporation. And it's
constantly evolving to meet modern challenges
like sustainable investing. But at its core,
it's always the same. Wherever one person places
their trust and assets in the hands of another,
the law demands more than just competence. It
demands the complete submission of self -interest.
And if you connect that all the way back to its
origins in the Court of Chancery, the Court of
Conscience. And you think about that absolute
rule that you can never contract out of dishonesty.
If the standard is set at a level higher than
that trodden by the crowd, what does that teach
us about the true definition of trust in any
part of our lives? Maybe it's that the real test
of trust isn't just about competence when things
are going well. It's about the willing, legally
enforceable surrender of your own self -interest
when the temptation to profit is at its absolute
highest. Something to think about the next time
you hand over control of anything important to
someone else.