Asset Manager Stewardship and the Tension Between Fiduciary Duty and Social License

Abstract

Using data collected from interviews with asset managers in Europe and the United States, this paper explores the tension between asset managers’ fiduciary duty towards their ultimate investors and their own need to maintain a social license to operate. It documents shareholder attempts to redefine the understanding of the concept of fiduciary duty in order to ease this tension and corporate efforts to resist this. Asset managers’ response to social pressures has been to focus exclusively on financial returns, targeting ‘value not values’. However, such an approach violates the fact/value dichotomy, which dictates that it is impossible to separate business considerations from ethics. Instead this paper advocates for the largest asset managers to acknowledge the social responsibilities that result from their large shareholdings. With growing number of households investing in funds and an ever-greater proportion of these assets intended for retirement, a new understanding of fiduciary duty is required.