Introduction

This Handbook responds to the evolution in the ownership of companies and financial assets over the past thirty to fifty years. It also is concerned with the more recent widespread failure of pensions and other long-term savings vehicles to deliver on sustainable financial security goals for the individuals whose monies they are investing.

The volume highlights important changes in the landscape of finance, especially with regard to institutional investors: those large financial institutions entrusted to manage most of our savings, pensions, retirement funds, insurance assets and national wealth reserves. It primarily focuses on the changing legal understanding of the role and purpose of these institutions in many countries. This includes recognition of the influence that collective investment practices of institutional investors have on society and the greater economy, as well as the corresponding influence that economic health and social stability have on the sustainability of institutional investors’ performance and their ability to succeed in meeting long-term goals for the beneficiaries who depend on them and who collectively constitute the societies in which they exist. The Handbook is also a testament to the rapidly evolving nature of academic research and public policy discourse concerning institutional investment and financial markets.

The world currently faces increasingly complex governance challenges. While there is a growing recognition that we urgently need to take a longer-term view in order to deal with them successfully, many of the incentives that shape the thoughts and actions of leaders encourage myopia in the private and public sectors alike. Strategies with a high probability of success are available but not pursued because powerful short-term incentives are increasingly misaligned with the timeframes required for the solution of growing problems with profoundly destructive inter-generational impacts.

Thus far, legislators have not adequately addressed these inter-generational issues. In previous eras, when obvious and invidious injustices grew to intolerable scale due to the protracted paralysis of leaders, the necessity for action has often found its venue, by default, in the judiciary. Now, once again, courts – responding to specific fact situations – may well play a critical role in breaking this logjam. One likely legal strategy is based on the concept of fiduciary duty – the legal obligation to act in the best interests of others.

Introduction

Fiduciary duty is a dynamic concept – one that has responded to changing contexts and worldviews but is firmly rooted in clear and enduring legal principles. As society faces governance challenges, there is a growing recognition of the need to take a longer-term and more systemic view of fiduciary obligations. This challenge is particularly acute in the financial services sector.

The Supreme Court of Canada (the “Court”) has focused on developing a coherent view of the nature of fiduciary relationships and the consequences thereof. In doing so, it has extended the scope for fiduciary duties and consequential remedies. After a summary discussion of how fiduciary duties have been applied in the pension fund context, this chapter reviews the efforts of the Court to develop this broader conceptual framework. We then consider, in the context of pension fund administration, steps that might be taken to address and mitigate liability in respect thereof. We conclude by considering the trajectory of the law – why pension fiduciaries are increasingly required to look beyond the immediate “imperatives” of the market to longer-term, systemic concerns, such as intergenerational equity and sustainable development. So positioning fiduciaries with public responsibilities will further alter legal and governance precepts.