Fiduciary Responsibility in the Higher Sense

In October 2015, during the Annual Meetings of the World Bank and the International Monetary Fund, the Managing Director of the IMF, the world’s most powerful fund for stabilizing national budgets, announced that “anything that is macrocritical is the IMF’s business”. This was an historic shift from a view that all that mattered was the hard arithmetic of a given budget to a view that the math could not be honestly rendered without accounting for policies that create ripple effects and feedbacks throughout the entire macroeconomy.

Even as the world’s leaders are moving toward a commitment to sustainable development, climate-smart future-building, and civics and business-ready education for all people everywhere, Donald Trump alleges that “fiduciary responsibility” to his businesses and investors requires him to dodge taxes. The best way to talk about how wrong Mr. Trump is will be to leave him and his bombast out of the story, except to say his ideas about fiduciary responsibility and tax dodging are wrong in every sense of the word.

A fiduciary responsibility is an intimate legally founded contractual relationship, to which both parties agree. A lawyer or a doctor has a fiduciary duty to their clients, not to disclose personal information, but also not to profit personally from abuse of that relationship.

A broker or money manager also takes on a fiduciary duty to a client. That duty is in part about making an honest effort to protect, secure and “grow” the assets under their control, but it is also—and more importantly—a duty not to seek illicit profit by misusing of the assets under their control. The fiduciary duty is about ensuring that money, wealth or wellbeing belonging to the fiduciary counterpart actually accrues to them and is not stolen away by the fiduciary practitioner through illicit activity.

In relation to taxes, there is no fiduciary responsibility to dodge taxes. There are four primary reasons this is the case:

  1. Paying taxes is not an illicit profit taken by the fiduciary practitioner and cannot be construed as theft or abuse of the assets under their management.
  2. Taxes on profits or capital gains do not eliminate the increase to the underlying assets; they are taken as are all taxes as a portion of the added income.
  3. Taxes pay for services, which create a unique kind of economic efficiency, allowing for the infrastructure on which most investments are based.
  4. Fiduciary duty does not require providing “perfect advice” or “maximum personal gain” to any party; it is strictly about honorable service and no theft.

Though fiduciary duty does not apply to the professed responsibility to dodge taxes, if we take the presumed case where an individual counts nearly $1 billion in losses against personal income taxes, this may actually allow the individual to use other people’s losses to avoid taxes personally for many years. This would be a direct reversal of the principle of fiduciary duty.

While we are in this metaphorical application of the fiduciary duty, interpreted as a business leader’s responsibility to maximize value and profit, the question of tax liability is a question of value added through services to the public. Do we, for instance, live in a smarter, better, more capable society, when our fellow citizens are better educated or not? Is it easier to benefit commercially in a market with well-managed roads, well-maintained commercial railroads, and maximum personal mobility for consumers, staff and investors?

There is math narrowly construed for the convenience of individuals, with personal agendas, and who would like to discount the larger balance of values.

And there is macrocritical math, which counts the value of a wider landscape of influences. If one wants to judge whether genuine service to investors is best served, one must count the macrocritical drivers of value. Without doing so, the more narrowly construed math is just guess-work, designed to show value where it may actually be subject to macroeconomic drag or to routine costly shocks that make long-term success non-viable.

Serious people can debate whether the tax code as currently structured provides the most efficient adding of value to the economy as a whole. We can also debate whether this benefit accrues with maximum value to billionaire investors or to all people, and who benefits from which dynamic. What is not debatable is whether investments do better in a society where taxes are routinely dodged, public services are in a constant state of collapse, and “the general welfare” is unattainable.

When we think about this “fiduciary responsibility” in the higher sense—a basic responsibility to best serve those one works with—we need to consider that this means responsibility to support the policies that create maximum macrocritical resilience. It is in these areas of macrocritical value creation that future opportunity is added to the landscape of opportunity from which any serious business model seeks to profit.

Macrocritical resilience and value expansion absolutely cannot be achieved by dodging taxes. We need leaders—in business and government—who understand that value is something bigger than one’s own personal profit and who know how to generate value that actually improves conditions in the world.

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