Business Day



WHEN the history of the financial era which has just drawn to a close comes to be written, its major faults will be ascribed to the failure to observe the fiduciary principle, the precept as old as holy writ, that “a man cannot serve two masters”.

The separation of ownership from management, the developmen­t of the corporate structure so as to vest in small groups control over the resources of great numbers of small and uninformed investors, make imperative a fresh devotion to that principle.

Yet those who serve nominally as trustees, but relieved, by clever legal devices, from the obligation to protect those whose interests they purport to represent, corporate officers who award to themselves huge bonuses without the assent or even the knowledge of their stockholde­rs … financial institutio­ns which, in the variety of their operations, consider last, if at all, the interests of those whose funds they command, suggest how far we have ignored that principle. The … harm done to a social order founded upon business and dependent upon its integrity, are incalculab­le. — From Harlan F Stone’s address at the University of Michigan Law School, 1934

There are those who argue that shareholde­rs are not the owners of corporatio­ns. Therefore directors can serve other interests without breaching their duties to shareholde­rs. The final stage in this move (towards greater acceptance of dishonesty) would be a culture in which dishonesty is taken for granted, and no one can imagine any other order of things.… Then what we consider to be fraudulent behaviour today will be the natural and smart way to behave. We’re not there yet, but we are moving in that direction. — Tamar Frankel, Trust and Honesty, 2006 Michel Pireu — e-mail

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