The premise is simple.
Authenticity = Prudent + Loyal + Competent to the purposes of a governing charter for the custody and care of other people's money.
(In)authenticity = (Im)prudent + (Dis)loyal + (In)competent to the purposes of a governing charter for the custody and care of other people's money.
Authenticity is a concept I picked-up on from Roger Martin, Deal of the Rotman Business School and author of the book, "Fixing the Game", during his recent Webinar conversation with Raj Thamotheram of the Network for Sustainable Financial Markets, who co-hosted the event with the Sustainable Investment Professional Certification program at Concordia University.
Roger was making the point that business management according to the theory of "maximizing shareholder value" is inauthentic, because the authentic purpose of business is to successfully balance the competing interests of multiple competing constituencies, including customers, workers, suppliers, as well as investors. To make the interests of one of these constituencies paramount in importance above all others in inauthentic, and unsustainable.
This dichotomy of authentic/inauthentic sheds light on the question of fiduciary duty for stewardship investors, like pension funds. Consider that the authentic use of trading markets is to manage temporal mismatches between individual investors. As a general principle, individuals invest when they can, and sell when they need the money. Timing is what drives their decision-making. To be sure, they want to buy at the best price, and sell at a better price, but the decision to buy or sell is not being driven primarily by price. It's being driven by cash flow.
Now consider how this dynamic changes when institutions, like pensions funds, become the primary market participants. Pensions are perpetual investors. When they sell, they take their sale proceeds and buy something else. The money, once it enters trading, never exits. It just gets churned around. For pensions the motivation to trade is not their market-external needs to manage their cash flows. Some of it is. They do have bills to pay. But not for the most part. For the most part, they sell to take profit and buy in hopes of getting a deal. In each case, they do so at the expense of another investor. As more and more of the money invested in trading platforms is institutional, more and more we see stewardship institutions seeking to take profits at the expense of each other.
Is this an authentic way for fiduciaries to behave?