“No one can serve two masters.”

Although the tradition is not mine, I can appreciate the rabbinic-like wisdom in the statement. Unfortunately, it appears that ERISA lawyers, on the whole, have not embraced this learning.

The statute, however, clearly is not agnostic on this topic.  Consistent with traditional trust-law concepts, and possibly not unaware of theology, ERISA demands a “duty of loyalty” by a fiduciary to the plan on whose behalf it is acting.

The language of statue is clear.  Dual loyalties are prohibited.  Nonetheless, ERISA lawyers (with the blessing of the courts) still continue to abide by the “two hat” doctrine.

Let me explain.

Two weeks ago, at a national conference of ERISA lawyers, a panel of in-house ERISA lawyers, reviewed a variety of issues that they encounter on a regular basis.  When the discussion shifted to fiduciary practices, one of lawyers explained the care and diligence that she employs when counseling the plan sponsor’s investment committee. This committee, of course, serves as a fiduciary to the retirement plans.  She said that she repeatedly recites or invokes the “two-hat” doctrine.

That is, in the day-to-day exercise of their corporate responsibilities, the officers owe a duty of loyalty to the shareholders of the corporation.  However, in the context of an investment committee meeting, they needed to “remove” their “corporate hat” and replace it with their “fiduciary hat”.  All decisions need to be made “in the best interests of the plan participants.”  They must disregard their duties to the corporation.

Upon recital of the two-hat catechism, every single participant on the panel nodded his or her head in agreement.   An ERISA truth had been proclaimed and knowledgable members of the ERISA bar mustered all of their reverential professionalism and genuflected at this statement of the canon.

Yes, it is commonly accepted that a corporate officer can “wear two hats”.  A chief financial officer, or a director of marketing, can spend his days (and often nights) toiling rigorously on behalf of the corporation (and shareholders), but during certain committee meetings they must shed this hat and instead, make a decision “solely in the interest of the participants and beneficiaries.”

Regularly, in corporations though out America, decisions are made related to $ trillions of retirement assets under this “two hat” theory.

For many years, I too sang from the two-hat hymnal, often a solo, just like the panel member.  However, with a bit of middle-aged experience and having weathered a systemic financial crisis, I have learned at times it can be valuable to question received wisdom, to question the hymnal.  And, sometimes even acknowledge the wisdom of traditions not my own.

For a moment, let’s set aside legal principles, theology, as well as editorial sarcasm, and examine the “real” world.

Another participant on that morning’s panel, explained that the retirement assets of her corporate plan (in excess of $15 billion) are “so important that the CEO personally appoints the members of the fiduciary committee.”

When a CEO handpicks members of a committee, everyone takes notice.   While CEO lieutenants may be adept at various technical and managerial skills, often, intense loyalty to the CEO is a common attribute.  (Dissidents typically do not typically rise to the C-suite).

This loyalty often includes a precise understanding of the CEO’s goals and priorities with respect to corporate strategy and is often rewarded by promotions, committee appointments, raises, bonuses, stock options and other assorted perks.  The senior managers are properly incentivized to advance the vision of the CEO.

Upon assuming a spot on a fiduciary committee, however, these same senior managers are required to shed the very skills that contributed to their corporate rise.  When making decisions on behalf of the plans, they are suppose to set aside any allegiance to the CEO, forget about the stock options they may have patiently accumulated over the years, and make decisions irrespective of an impact on corporate earnings.

The potential for conflicts of interest are real; they are not the abstract musings of lawyers and academics.   Many transactions squarely put the corporation and the plan on opposite sides, with competing goals.

So, can these corporate offices so deftly switch hats as ERISA lawyers assume?   Are fiduciary committee members so professional, so trustworthy, so ethical, that they are immune to the human impulses which gave rise to: “No one can serve two masters.”

Aren’t we all engaged in a collective willing suspension of disbelief as to the artifice of the two-hat theory?  Isn’t it time to say enough?  Let’s bring meaningful independence to the fiduciary oversight of the nation’s retirement plans.  The stakes are way too large not to.

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