The principal in this context can be a group of shareholders who have invested in the firm in their profit pursuits, beneficiaries, in the case of institutional investors, and – with growing ESG considerations – an array of stakeholders within the overall business environment. Boards and CEOs (agents), including the firms they represent (together termed “fiduciaries”), have oversight responsibilities for selected business endeavors and investment programmes as well as stewardship responsibilities for owner investments and beneficiary interests.
Challenges have arisen for firms with fiduciary responsibilities tied to governance, transparency and accountability. In as much as organizations have their own internal perspectives, the rising presence of multiple stakeholders (relating to the widespread ESG considerations mentioned earlier) has birthed complexities for fiduciary governance regimes. These multi-stakeholder paradigms consequently compel fiduciaries in Botswana and beyond to have a rudimentary understanding, at the very least, of fiduciary fundamentals. The range of responsibilities in this realm is broad. We will consider some of the basic obligations and elementary duties of fiduciaries.
The first obligation in this regard is that of demonstration of respect for social norms. Reference can be made to the United Nations-backed Principles for Responsible Investment which acknowledge a plethora of social factors ranging from cultural dynamism as reflected through changing stakeholder and community norms and scarcity of natural resources to increased social media and Internet usage in the dictation of fiduciary conduct. Fiduciaries must therefore ensure that in their selected business endeavors and investment choices, respect for social norms is reflected.
Secondly, an obligation (which is crucial for firms with investment responsibilities) exists of advising beneficiaries and principals regarding decisions affecting their investments. As fiduciaries have the investment knowledge and experience as well as market insights that investors and/or beneficiaries may not have, they are better positioned to advise and keep parties that they are entrusted to undertake investment activities for abreast. Fiduciaries must continuously ensure that any information asymmetry issues in the context of their operations are addressed, possibly through regularized communication of pertinent developments.
Another fundamental fiduciary obligation is to function and act intelligently and collectively. Respecting always that fiduciaries such as pension funds serve a broad pool of investors with varied characteristics including, for instance, risk preferences and investment time-horizons. Their decisions must reflect intelligence so as to ensure adequate coverage of the interests of the collective, an undoubtedly challenging obligation of leaving no one behind.
With respect to fiduciary duties, the first to consider would be the duty of impartiality. For purposes of this context, this duty is very closely tied to the obligation of acting collectively which has been highlighted above. Considering, for example, that fiduciaries such as institutional investors may have a pool of both short-term and long-term investors, how is the fiduciary ensuring that their investment programmes will produce returns and address interests for both constituencies? Another perspective can be that of trusts where responsible agents must satisfy both present income beneficiaries and the remainderman beneficiary whose benefits vest in the future.
The duty of care for fiduciaries relates primarily to exercising the best and most appropriate business judgements. In this light, fiduciaries must ensure that due diligence checks have been undertaken and that decisions are made with sufficient information. Business options must be considered as prudently as possible. The prudent-person rule could be applied here to ensure that fiduciaries take courses of action for those who have placed trust in them that they are certain they would have no reservations whatsoever taking for themselves.
Fiduciaries also have the duty of loyalty. This is a considerably straightforward duty reflecting that Boards and CEOs must at all times reflect their allegiance to those they serve. Rather than acting in their own selfish interests, fiduciaries must ensure that at all times the interests of their principals are prioritized. This may, for instance, be reflected in board members recusing themselves during meetings in matters in which they have vested interests that would compromise their decision-making and service.
The duties of acting lawfully, respecting the statutory legislation underpinning the fiduciary’s operations and acting in good faith as an entrusted agent and steward should also be upheld. The duty of confidentiality is also crucial as it supports the establishment and sustenance of fiduciary trust relationships. A comprehensive consideration of the stated obligations and duties can assist in the creation of more robust strategies and governance regimes for fiduciaries as these are crucial elements that set the tone for a formidable fiduciary foundation.