The Fiduciary Principle: No Man Can Serve Two Masters

Abstract

The concept of fiduciary duty—essentially “no man can serve two masters”—is centuries old. But over the past few decades too many institutional money managers have placed their own interests ahead of the principals that they represent (largely mutual fund investors and pension beneficiaries), as well as abandoning their traditional principles of long-term investing. As a result, the asset management industry’s allegiance to fiduciary standards has been seriously eroded. In this article, Bogle traces the causes of the current financial and economic crisis back to this shift in ethical values, citing a litany of violations of fiduciary duty by mutual fund managers. Drawing on the prescient wisdom of Justice Harlan Fiske Stone, Benjamin Graham, and John Maynard Keynes, Bogle argues for a federal statute of fiduciary duty for institutional managers, demanding due diligence and high professional standards in security selection, the exercise of the rights and responsibilities of corporate governance, and the elimination of conflicts of interest. The goal: to build a new financial world that serves the public interest and interests of investors.