Second in a Series: Time to Talk About the Public Interest
The TakeAway: This essay posits that the idea of fiduciary duty, with its legal and economic constructs, rests upon on a foundation spanning centuries of insights and wisdom about human behavior and civic virtue. There’s a higher “law” that serves as a beacon for peace and prosperity affecting our economic and political lives. That’s the fiduciary ethic, which is bounded in notions of trusteeship, of stewardship, of being a custodian or guardian.
A fiduciary ethic affects not just the manner in which financial assets are managed. It also speaks to the very core of what it means to be a trustee or director or steward. Unveiling and reformulating the ethics underlying the fiduciary ethic can help resurrect the civic moral dimension to economic and political life.
This can happen through reframing and re-visioning what capitalism and economic activity are supposed to achieve, to generate meaning and value in our lives. In addition to social history, principles emanating from political philosophy, world religions, theology, and humanist philosophy can aid theory-building and point the way toward changes in professional practice.
The word “apocalypse” has been given a bum rap. It conjures up images of end times, of the world turned upside down, of frightening images from the Book of Revelation.
According to the American Heritage Dictionary, “apocalypse” commonly is associated with ancient Jewish and Christian texts from the second century B.C. to the second century A.D. that contain prophetic or symbolic visions. These images show the destruction of the world and the salvation of the righteous, the Rapture, and the “left behind”.
Through the centuries, the Book of Revelation and its apocalyptic motif became canonic, despite the fact that in those days there were all kinds of prophecies and visions throughout Asia Minor and the Holy Land. Some were buried and forgotten, but Revelations lived on.
Not many people know that Revelations might have been buried, too: it almost didn’t make the cut when the New Testament was assembled by a clerical committee three centuries after the death of Jesus.
Last year, in his New Yorker review of Elaine Pagels’ 2012 book, Revelations: Visions, Prophecy, and Politics in the Book of Revelation, Adam Gopnik notes that the Book of Revelation was inserted in the New Testament by a church council convened in the three-sixties.[1]
Since then, Gopnik writes, its vision of cosmic war has remained a popular hit, with all the elements of a Michael Bay action movie.
Yet Pagels, a prominent religious historian at Princeton, shows us that Revelations was but one of several “canonic” texts of that period. Others include the “Gnostic” texts that have been discovered since 1945, particularly those found at the lost library of Naj Hammadi in Egypt.[2] An expert on the so-called Gnostic Gospels, Pagels reminds us that what we consider to be timeless truths are rooted, literally and figuratively, in shifting sands.
They’re often the product of political and cultural designs that perpetuate the reigning beliefs and power relationships of the day. In her work, Pagels shows again and again that Christianity would have turned out quite differently, particularly regarding the role of women, had Gnostic texts become part of the Christian canon.[3]
Indeed, an alternative interpretation of “apocalypse” begins with its ancient Greek meaning: to reveal something that’s hidden, to uncover, to unveil. The etymology of “apocalypse” – the Greek word is ἀποκάλυψις – comes from ἀποκαλύπτω (apokalúptō, “I disclose, reveal”), from ἀπό (apó, “from”) and καλύπτω (kalúptō, “I cover”).
As such, apocalypse can serve as a neutral term that opens up other applications to modern life, more constructive ones that belie the fiery destruction of the Armageddon motif.
Loose Canons and Apocalypse Now │ This has significance today for received wisdom and assumptions about fiduciary duty—about what’s been buried, and what’s prevailed. As Steve Lydenberg argues in his 2011 IRRC Institute prizewinning essay “Reason, Rationality, and Fiduciary Duty“, traditional notions of fiduciary duty flowed from legal and economic thought in the Western intellectual tradition. Legal (e.g., “reasonable”) and economic (e.g., “rational”) traditions created tensions for fiduciaries, because they called for different standards of appropriate behavior. “Lawyers often use the standard of ‘reasonable’ behavior, while economists frequently presuppose that people act ‘rationally’,” Lydenberg writes.
Reasonable behavior, which finds notable expression in tort law, supposes that one takes into account the effect of one’s actions on others. The reasonable is by extension concerned with the protection or enhancement of the common good. Rational behavior, which is axiomatic to many neoclassical economists, is essentially self-interested and seeks to identify the most efficient means of achieving one’s personal ends. The rational is primarily concerned with the attainment of private goals.[4]
In the late 20th century with the rise of Modern Portfolio Theory (MPT), Lydenberg writes, “rationality” was elevated to a higher plane, which diminished the role of reason in fiduciary decision-making. The MPT canon directed trustees to “act rationally—that is, in the sole financial interest of their funds—downplaying the effects of their investments on others,” Lydenberg writes. This disposition squared with the then-dominant neoclassical model of economic theory and analysis, which remained aloof from such matters as human behavior, social impact, or political realities.
“Previous interpretation of fiduciary duty…drew on a conception of prudence characterized by wisdom, discretion and intelligence—one that accounted to a greater degree for the relationship between one’s investments and their effects on others in the real world,” Lydenberg writes. In recent years, the subordination or “veiling” of this interpretation led to “increasing discomfort among institutional investors”, hence their “growing interest in the practice of sustainable and responsible investment.”
As a result, both “reason” and “rationality” became joined, as fiduciaries began to manage their funds in ways that “take the interests of others as embodied in the real world and the economy, as well as themselves as embodied in their funds, into account.
Reason and rationality can work in a complementary fashion to make investment long-term in its perspective and beneficial to society and the real economy as well as to specific funds or portfolios. Determining how to accomplish this challenging task is part of the obligation of fiduciaries as they seek to realize the full potential of the investment assets entrusted to their care.[5]
Lydenberg draws upon the American tradition of tort law in his analysis of “reason” and the common good, even as, in our own time, tort law is narrowly interpreted. Nowadays, in a highly litigious society, it primarily is grounded in the avoidance of civil claims. As currently practiced, tort law provides an impoverished picture of the larger social good – or dynamic interplay of “common goods”, a hallmark of American pluralist society[6]—that are at stake.
Restoring civic virtue to public economic and political life │ This wasn’t always the case. As many have written, law, like medicine, business, public service, even religious leadership, is a creature of social and political context: the prevailing moral norms of a given era permeate decision-making and assumptions about what is acceptable and what isn’t, the normative oxygen that remains invisible, yet is essential to life itself.
Over time, if these norms aren’t consciously tended and passed on, the air becomes toxic with other, less sympathetic norms—and we end up with what we have today, the triumph of a self-interested rationality that threatens social and planetary well-being.[7]
This essay builds upon Lydenberg’s important contribution to the demystification of MPT, but goes a step further. It extends Lydenberg’s argument regarding the inadequacy of the self-interested, rational approach and posits that even reasoned arguments about “the good”—cast in issue-specific terms—are insufficient to equip fiduciaries for the role they play in increasingly complex, uncertain times.
There are times when reason and rationality are not enough to make good economic policy and portfolio decisions. Sometimes one has to rely on a form of faith, a moral compass that may not easily translate into legal tests or precedents.
Especially when confronting unprecedented challenges such as climate change, the devastation wrought by natural disasters or political instabilities, the gyrations of an interconnected global economy—not to mention the impact of unbridled human passions and the power of technology to transmit them—there are other, less tangible sources of guidance to determine the right course of action.
“What’s right” sometimes involves a different set of principles, beyond statutes and regulations or algorithms. These principles are less tangible, and hidden by decades of obfuscation and disparagement with the rise of highly quantitative forms of economics.
This essay posits that the idea of fiduciary duty, with its legal and economic constructs, rests upon on a foundation spanning centuries of insights and wisdom about human behavior and civic virtue. As Lydenberg and other contemporary commentators have pointed out—particularly those within the burgeoning and overlapping fields of behavioral economics, behavioral finance, neuroeconomics, and neuropsychology—economic decisions are far richer than narrow interpretations of self-interest might suggest. And human beings are motivated by more than money alone.
There’s a higher “law” that serves as a beacon for peace and prosperity affecting our economic and political lives. That’s the fiduciary ethic, which is bounded in notions of trusteeship, of stewardship, of being a custodian or guardian. A fiduciary ethic affects not just the manner in which financial assets are managed. It also speaks to the very core of what it means to be a trustee or director or steward.
As many have chronicled, primary assumptions governing the role of trusteeship and directorship have become neutered within the past 130 years as a result of the bureaucratic state and the modern corporate form, the ascension of scientific management, the influence of the Cold War on social science, particularly economics,[8] where insights from psychology, anthropology, and sociology were stripped away, leaving purely quantitative models of legitimacy; and the technological transformation—indeed, the hegemony—of financial services.
Building on the author’s work over the past few decades in the realm of “money and morality”—including, back in the late 1990s, advising The Boston Foundation in its formulation of the nation’s first community foundation civic stewardship investment policy—as well as the work of others in a range of disciplines and fields of practice, this essay calls for excavating, locating, and continually assessing how certain civic moral principles related to “the good life” can be harmonized with investment policy and practice.
Rather than restricted to specific issues and certain portions of a portfolio—as was the case during the 1970s and 1980s’ debate over South Africa-related equity investments—the idea here is to view the fiduciary ethic as encompassing all asset classes and all issues. That is, the idea is to unveil the “ethics” of the “fiduciary ethic”, ethics that are nourished by civic moral roots that serve to inform and transform.
Put another way, this essay makes the claim that the “loose canons” of Modern Portfolio Theory, neoclassical economics, and “scientific” legitimacy have lost much of their validity as sole determinants of well-being in a world increasingly concerned about sustainable prosperity and justice.
Canons cannot live forever, nor should they become zombies. They eventually must give way to transformation and fresh thinking, to new paradigms of practice.
This involves an ongoing process of critical reflection and judgment, of fits and starts, of attention to history and what’s yet to come. The process of maintaining canonical vitality happens over a long course of time in order for new paradigms to emerge, as Thomas Kuhn wrote 50 years ago in The Structure of Scientific Revolutions.[9]
Three Propositions │ This essay advances three propositions, all aimed at reinvigorating critical thinking and deliberation over the “why” of the fiduciary role. It invites other to try and dig deeper and articulate the fundamental civic moral principles that lie at the core of the fiduciary and stewardship tradition—thus restoring it to its proper place in 21st century asset management practice.
- First, it calls for setting aside “loose canons” and looking back into history, from antiquity to current times, to understand various conceptions of the civic moral obligation of wealth. There are many religious and philosophical traditions, as well as insights gained from sociology, anthropology, and psychology, about “exchange relationships” and community well-being. At a time when worldwide concerns about sustainability and justice are rising, it’s worth drawing from this authoritative reservoir of wisdom about the right thing to do.
- Second, it calls for the formulation of a “values vocabulary” having contemporary resonance and suited to economic and political decision making. This vocabulary can enrich application of the fiduciary ethic, and constitute a lexicon that helps guide and inspire. There are many sources for this, but because language flows from experience, such a vocabulary needs to be rooted in practice and suited to the times. You don’t just make it up.
- Third, it calls for broader professional and public dialogue about the civic moral dimension of fiduciary obligation, and by extension its impact on the real economy. Such a conversation can take advantage of enabling technologies such as social media and other digital interactive tools—as well as “deep learning” or “Big Data” technologies that shed new light on human practices—so that professionals and plain people can deepen their understanding and improve performance about the practice of civic stewardship in modern economic life
Unveiling and reformulating the ethics underlying the fiduciary ethic can help resurrect the civic moral dimension to economic and political life. This can happen through reframing and re-visioning what capitalism and economic activity are supposed to achieve, to generate meaning and value in our lives.
In addition to social history, principles emanating from political philosophy, world religions, theology, and humanist philosophy can aid theory-building and point the way toward changes in professional practice.
Next: “Back to the Future: Apocalypse Now”
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Editor’s Note: This is the second installment of MurnPost’s Time to Talk About the Public Interest series. Part One appeared on August 13th, 2013, here. It’s based on a long essay submitted to the IRRC Institute Award competition, written in November 2012.
[1] Adam Gopnik, “The Big Reveal: Why does the Bible end that way?” The New Yorker, March 5, 2012. See also Elaine Pagels, Revelations: Visions, Prophecies, and Politics in the Book of Revelation (New York: Viking, 2012).
[2] A complete and definitive translation of the Gnostic scriptures can be obtained in one volume, the result of the work of members of the Coptic Gnostic Library Project of the Institute for Antiquity and Christianity at Claremont, California. See James M. Robinson, ed., The Nag Hammadi Library in English 3rd ed. (San Francisco: HarperSanFrancisco, 1990).
[3] See especially Elaine Pagels, The Gnostic Gospels (New York: Random House, 1989); Beyond Belief: The Secret Gospel of Thomas (New York: Random House, 2005) and The Origin of Satan: How Christians Demonized Jews, Pagans, and Heretics (New York: Random House, 1995).
[4] Steve Lydenberg, “Reason, Rationality and Fiduciary Duty” (Cambridge: Initiative for Responsible Investment, Hauser Center for Nonprofit Organizations, John F. Kennedy School of Government, Harvard University, 2011).
[5] Ibid., at IRRC Institute website: http://irrcinstitute.org/pdf/FINAL-Lydenberg-Reason-Rationality-2012-Winner.pdf
[6] In his book, America the Philosophical, Carlin Romano argues that Americans is a place of bubbling ideas that have broadened the boundaries of philosophies. He notes that Americans have always disagreed about “first principles”, despite the important contributions of figures such as John Rawls. Carlin Romano, America the Philosophical, (New York: Alfred A. Knopf, 2012). This idea of tolerance for pluralist views, particularly religious, can be traced to the nation’s colonial beginnings, writes John Barry in Roger Williams and the Creation of the American Soul: Church, State, and the Birth of Liberty (New York: Viking, 2012).
[7] Important commentators on the erosion of virtue in public and professional life are too numerous to mention here; many can be found in the Select Bibliography. Perhaps foremost among them is Harvard political philosopher Michael Sandel, who long has argued for a restoration of virtue in our representative democracy. See especially his Democracy’s Discontent: America in Search of a Public Philosophy (Cambridge: Harvard University Press, 1998) and Public Philosophy: Essays on Morality in Politics (Cambridge: Harvard University Press, 2005).
[8] See especially Cold War Social Science: Knowledge Production, Liberal Democracy, and Human Nature, Mark Solovey and Hamilton Cravens, ed. (New York: Palgrave McMillan, 2012); Jefferson Pooley and Mark Solovey, “Marginal to the Revolution: The Curious Relationship between Economics and the Behavioral Sciences Movement in Mid-Twentieth Century America,” in History of Political Economy 42 (annual suppl.) (2009); and Rakesh Khurana, From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession (Princeton, NJ: Princeton University Press, 2007).
[9] First published in 1962 by the University of Chicago Press, Thomas S. Kuhn’s classic, The Structure of Scientific Revolutions sets forth the “disruptive” theory of scientific progress, in contrast to a more sedate, linear process. Kuhn’s idea of “paradigm shifts” incorporated multiple strands of science, sociology, politics, and psychology, and challenged prevailing notions of purist thinking about rationality.
