In Modernizing Pension Fund Legal Standards for the Twenty-First Century, we explore the symbiotic relationship between sustainable success of the corporate sector and the ability of pension funds to successfully fulfill their mandate. We note that exponential growth in the size of pension fund assets since the 1970s and their current collective ownership of public corporations has turned pension fund governance into a major corporate governance factor. We argue that traditional views of pension fund governance and fiduciary responsibility, which developed during a time when pension fund investment practices had little effect on the markets, are outdated. With institutional investors owning 76 percent of the Fortune 1000, pension fund governance and corporate governance are now opposite sides of the same coin, with each exerting a major influence on long-term success of the other.
We concentrate on the pension fund side of this relationship and argue for a modernized interpretation of fiduciary duty. We maintain that prevailing interpretations of pension fund legal duties and common pension fund governance practices may be ill-suited for the complex investment instruments and the market-moving amount of assets now being managed by pension investors. We recommend changes in the interpretation of pension fund legal standards and identify priorities for improvements in pension fund governance to promote sustainability of wealth creation for both the pension and corporate sides of this symbiotic relationship.
The full paper appears in the Spring 2009 issue of the Rotman International Journal of Pension Management, published jointly by the Rotman International Centre for Pension Management and University of Toronto Press and is available for download here.