A new fault line is emerging in corporate governance that pits the fiduciary duties of corporate directors against those of the diversified retirement fund trustees who own their companies’ shares.

When a retirement fund trustee concludes that a company’s negative externalities, such as sub-living wages or carbon pollution, pose unacceptable long-term risks to beneficiaries’ portfolios and presses the board to act, the board may reasonably decline. In contrast to the duty of pension fund trustees, the fiduciary duty of corporate boards extends to the long-term value of the company’s shares, not to the health of the broader economy. In this scenario, both sets of fiduciaries may be acting exactly as the law requires. Yet they are on a collision course.

This blog post maps that emerging conflict. It traces growing pressure from asset owners to address systemic risks–climate change, inequality, biodiversity loss, and erosion of the rule of law–and the resistance from corporate boards, conservative legislators, and regulators. It examines the tactical options available to retirement trustees, the backlash they may expect to face, and what this looming clash could mean for the future of corporate governance.

Read the full post on Harvard Law School Forum on Corporate Governance.

Photo by Yibei Geng on Unsplash