In the not-too-distant future, we will look back at existing governance frameworks (public as well as private) and think of them as having been, at best, quaint. How did we allow privatized returns to become so untethered from socialized risks? How did we allow the severe imbalances that are likely to preoccupy policy-makers for coming generations? Most agree that we need to find new models to collaboratively address these challenges at a global level. What emerges must focus on addressing inequalities, including those between current and future generations. (Edward Waitzer, The next generation gap: equity and fairness, supra.).
The GPFG is a state-owned fund, and is dependent on the trust of the general public in order to achieve a good management of the Fund capital. Accordingly, emphasis must be given to securing broad-based political support for the Fund’s investment strategy, transparency about all aspects of management, and responsible investment practices that take account of good corporate governance and environmental and social factors. Moreover, the Fund depends on legitimacy with other market participants to secure good, stable framework conditions over time. (From Norwegian Ministry of Finance, Report No. 15 (2010-2011): The Management of the Government Pension Fund in 2010, Boks 2.1 Special features of the Government Pension Fund Global).
How is it, for example, that the Big Three auto makers were driven to build far more vehicles than the market demanded in the runup to the auto bailouts? One study argues they did so to compete on the hours-per-vehicle metric widely used by investment analysts as an indicator of efficiency. Increasing production also allowed them to keep the costs of excess capacity off their income statements and on the balance sheet in the form of inventory. All in spite of the obvious damage to sustainable performance (and reputation). A recent Bank of England study found that “investment choice, like other life choices, is being returned to a shorter wavelength,” leading to irrational decisions – particularly with respect to projects of longer duration that often yield the highest private (and social) returns. (Edward Waitzer, The next generation gap: equity and fairness, supra.).
A key focus in searching for durable solutions must be on intergenerational equity. One reform, discussed at the World Economic Forum in Davos last month, is the need for new leadership norms (in both the political and economic spheres) – striking a balance between older generations and youth.
While our legal systems are infused with the notion of equity and fairness between contemporaries, we have yet to embrace the notion that justice should be facilitated between members of different generations. One exception has been in environmental law. For example, many of the provinces and the federal government have enacted “sustainable development” legislation, designed to improve environmental decision-making. The statutes define “sustainable development” as meeting present needs without compromising the ability of future generations to meet their own needs. (Edward Waitzer, The next generation gap: equity and fairness, supra.).
One possibility may be to breathe new life into legal norms that have fallen out of favour over time. For example, the fiduciary duty of trustees includes a duty of impartiality, which should require them to balance short-term and long-term considerations. How many today could defend themselves from a claim that future generations are being dealt with in a less than evenhanded manner? Can they demonstrate that they have identified and impartially considered the conflicting interests of beneficiary groups – present and future? Just as law- and regulation-making must generally be accompanied by cost-benefit analysis and “notice-and-comment” procedures, perhaps the time has come to develop a more applied principle of intergenerational equity – requiring legislatures, judges, pension fund trustees and, yes, corporate CEOs and boards of directors to consider and be held accountable for the impact current decisions have on future generations’ interests – each in their particular contexts. (Edward Waitzer, The next generation gap: equity and fairness, supra.).
Yesterday, New York became the 7th state to pass into law legislation that allows the formation of a new and different type of corporation, one that is required to create benefit for society as well as shareholders: The Benefit Corporation. I heard about this from my friend Barb, whose husband's company will apply immediately to be one of NY's first benefit corporations. . . . According to Kyle Westaway, a lawyer who studies corporate forms and represented Launcht, the first company to file and officially become a Benefit Corporation in Vermont, this new class of corporation is a milestone for two reasons: The law, he says, "broadens the goals of the corporation from [just] profit to: profit, people and planet. Secondly, the Benefit Corporation increases transparency and accountability, by using an independent third party to verify that a business is acting in a socially and environmentally conscious fashion."Another big reason why a Benefit Corporation designation makes a huge difference is that it allows its owners to weigh factors other than just money, should it later be sold. (From Occupying the Future: Benefit Corporations now opening shop in NY, six other states, Daily Kos, Dec. 14, 2011).