Common Sense on Mutual Funds: Fully Updated 10th Anniversary Edition

Chapter 18. On Directors: Serving Two Masters

"No man can serve two masters." Almost 2,000 years ago, the Gospel of Matthew recorded those profound words of the Lord. As U.S. securities law developed, that principle was fully honored. The fundamental role of corporate directors is to serve only one master—the shareholders of the corporation. The operative words are: with an eye single to their interests. Directors have willingly accepted this standard of fiduciary duty, exemplified in this excerpt from the board of directors' mission statement of a Fortune 500 corporation:

The mission of the Board is to achieve long-term economic value for the shareholders. The Board believes that the Corporation should rank in the top third of peer companies in the creation of economic value, as reflected in total return to shareholders. Board members should think of themselves as owners of the business representing other owners.

I am confident that the principles—if not the words—articulated in that statement are observed today by nearly every major publicly held enterprise in the United States.

Except for those corporations known as mutual funds.

Most fund directors seem to operate under a distinctly different mission statement. The gospel that they follow says, in effect, that directors of mutual funds, alone among all corporations, can serve two masters. While fund mission statements are conspicuous by their absence, were the gospel derived from the actions of fund directors, the statement might ...