Shareholders and campaigners call for legal clarity on fiduciary responsibility

Mis-interpretation leads to erroneous focus on short-term returns

A group of leading investors, campaigners and academics in the UK have called for legal clarity on the role of fiduciary duty in responsible investment.

They argue a misguided interpretation is forcing institutional investors to focus solely on maximising short-term returns and ignore “anything that cannot immediately be monetized”, in a letter in The Times.

Among the signatories to the letter, marshalled by FairPensions, are Hermes Fund Managers, Aviva Investors, Jupiter Asset Management, the UN Environment Programme and advisors Pensions Investment Research Consultants (PIRC) and EIRIS.

“It is sad to note that the dysfunction in the system has got to such a stage that we are finding it difficult to define what fiduciary duty, which is self-evident, should mean,” said Saker Nusseibeh, acting chief executive of Hermes.

“Legal clarification is needed to confirm that fiduciary investors may act as responsible and enlightened market participants in the pursuit of sustainable value creation – thus enabling them to better serve their beneficiaries’ true best interests,” the letter states.It comes before FairPensions is set to unveil its new report called ‘The Enlightened Shareholder’ at the House of Commons tomorrow, featuring an address from Professor John Kay. Kay is currently preparing a government-backed report into markets and short-termism. The new FairPensions report builds on the group’s well-received 2011 report on fiduciary duty.

“As we enter AGM season, all eyes will be on the investor community, as politicians from across the spectrum focus on shareholder oversight as the answer to so-called ‘crony capitalism’,” the letter states. The mis-interpretation of fiduciary duty “is at best simplistic and at worst a myth with scant basis in law”.

“Yet it remains deeply entrenched in the advice received by pension fund trustees and other major investors.” Link

Meanwhile, it’s emerged that Hermes Equity Ownership Services and the National Association of Pension Funds hosted a meeting with 40 of the FTSE 100 companies and occupational pension funds on February 27 to discuss executive pay. The discussion, attended by Business Secretary Vince Cable, focused on how long-term investors can best support companies in improving remuneration practices, through engagement and the “considered use” of their voting powers.