Eco-Justice Ministries  

Eco-Justice Notes
The E-mail Commentary from Eco-Justice Ministries

A Violation of Trust
distributed 11/14/03 - ©2003

In recent weeks, the investment world has been hit with a series of scandals. Even those who don't pay close attention to the markets are now hearing about it in the headlines.

The latest round of financial corruption has been centered in the big companies that manage mutual funds, the firms who buy and sell enormous quantities of stock on behalf of other investors.

The millions of individuals who own shares in mutual funds trust the fund managers to take good care of their investments -- to do careful accounting, to make well-informed choices in stock trades, and to play fair with everyone involved. But it turns out that playing fair hasn't been a universal practice.

Corporate shake-ups and legal settlements with the Securities and Exchange Commission (SEC) have hit three big-name firms, and many other well-known investment houses have been implicated.

The two practices that are involved in the recent investigations are late trading (which is illegal) and market timing (which is legal, but is broadly considered to be unethical). Both practices use quirks of the trading system to give insiders an edge in reaping profits. One expert said that late trading is like "betting on a horse race after the horses have crossed the finish line." It is easy to make high-yield trades when you already know tomorrow's prices.

The practices are sleazy when they are done by individual investors. The ethics get worse in the realm of mutual funds. Because the corrupt practices involve lots of transactions, and the costs of those are shared among all the fund investors, the ordinary folk who own shares in the funds are forced to absorb extra management and trading fees. Other details of the market timing process mean that the overall value of the mutual funds are diluted in order to shift wealth to a few individuals.

A few select investors, and a few disreputable fund managers, have reaped huge profits at the expense of the normal investors in mutual funds. By one report, the costs to long-term shareholders could be as high as 20% of their annual investment growth.

News reports about the scandal repeatedly use the term, "a betrayal of trust." Fund managers are in a position of trust -- both morally and legally -- to serve the best interests of all those who own shares in the fund. It is, indeed, a violation of that trust if the investment system is abused to profit a few select investors.

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The moral message of mutual fund scandals hits close to home -- or it should. There are striking parallels when we consider humanity's role in managing God's creation.

Among the many theological interpretations of humanity's "place and purpose" in the creation, most make some reference to some form of "responsible dominion," often referred to as "stewardship."

In that theological approach, there is a core affirmation that "The earth is the Lord's, and all that is in it" (Psalm 24). The wonderful richness of the creation is not ours; it belongs to God. Humanity's distinctive role on the earth has to do with the appropriate, faithful management of what is God's. Our charge, our trusted role, is always to serve God's purposes, not our own. God's purposes, at least from the perspective of an environmentally-aware ethic, are very long-term, and include care for all parts of the creation.

Just like the managers of a mutual fund are charged with serving the investment goals of all the shareholders, the human role of stewardship or "trusteeship" calls on us to serve all those who share in Creation's assets. Looked at from that perspective, the human stewardship of creation is even more corrupt than what is making financial headlines this fall.

As a general rule, we humans -- individually and societally -- have taken the rich bounty of God's creation and tapped into it for our own short-term benefit. We have dramatically diminished the value of the whole fund, and we have profited by shifting costs onto others. We have abused and ignored the position of trusteeship so that we -- and especially those of us with the most control -- can reap enormous personal gain.

A mutual funds consultant exuded horror or disgust when he spoke of one of the firms in this week's news: "Here are two principals of a business who are willing participants in an activity that could be detrimental to the shareholders of the funds they sponsor." No! That's not the way the system is supposed to work!

At the start of the 21st Century, in a world with over 6 billion people, and with powerful new technologies, it is clear that humans are willing participants in countless activities that are detrimental to the diverse stakeholders in the Earth's long-term stability. The human consumption and depletion of resources -- pursued so often not just willingly, but enthusiastically -- is a profound violation of trust.

The path to a sustainable world, a world where the fruits of creation are shared to provide sufficient resources for all people and all species, is difficult. There are many technical, ethical and philosophical problems to be solved.

But however we handle those many problems, we're never going to find our way to real sustainability until we internalize a proper notion of stewardship. As long as we humans violate our position of trust, as long as we seek our own gain instead of respecting the needs of all, we'll never get find our way to a just and sustainable future.


Peter Sawtell
Executive Director
Eco-Justice Ministries

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