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home » case studies » case 8 Case 8
The Case
This British case deals directly with the issue of ethical investment. The Church of England's estates and funds were administered and controlled by a board of trustees under the explicit guidelines that the fund should be administered to further the Christian goals of the Church of England. The plaintiffs in the case - the church commissioners - contended that the trustees were in breach of their duty in failing to consider non-financial criteria in making investment decisions. The plaintiffs claimed that although non-financial criteria are considered in investment decisions, their primary consideration is the financial state of the fund. Facilitator's Note Select three groups and assign each group a role. Each of the three groups has their own fact sheet (below). Give each group 45 minutes to discuss the issues facing them and to prepare their presentation. Each group's presentation must include the most compelling arguments for their case; each group will also have time to rebut arguments put forward by the other two groups. Allow 20 minutes for each presentation and a further 20 minutes for rebuttal. Finally, allow 30 minutes for plenary discussion including the discussion of what really happened. Players
In 1948 a committee of trustees was established to control and administer the Church of England's estates and funds that totaled approximately £2 billion. The committee was comprised of both clergy and laypeople that had the experience and expertise in managing funds. The trustees had the exclusive power and duty to act for the commissioners in regards to the management of the assets, including the power to sell, purchase, exchange, let land and make and change investments. The trustees and the church commissioners were in regular contact concerning the investment practices of the committee. The underlying purpose of the trust was set out in the investment policy: to promote the Christian faith through the Church of England. Specifically, the commissioners' investment policy stated, "While financial responsibilities must remain of primary importance (given our position as trustees), as responsible investors we also continue to take proper account of social, ethical and environment issues…this means that we do not invest in companies whose main business is armaments, gambling, alcohol, tobacco and newspapers". In light of this policy, the Bishop of Oxford and his council passed a resolution urging the trustees to adopt certain specific criteria in relation to South Africa. The Bishop and other commissioners felt that investments in companies that dealt with South Africa would be in conflict with the moral and ethical views of the Christian church. Specifically, they proposed a prohibition on investment in groups of companies that derived more than £10 million in annual profits from South Africa or more than 3% of their worldwide profits from South African activities. However, the trustees rejected this proposal because it would make their diversification requirements impossible to obtain. Another proposal was set forth concerning land owned by the commissioners in a village where local young people were finding housing impossible to afford. A number of commissioners suggested that the land could be made available for low-cost housing at a price below open-market value. The commissioners felt that investing in a low-cost housing development would not only meet the needs of the local people, but also set an example for other investors. This proposal was also rejected by the assets committee as it would be a financial detriment to the fund. As a plaintiff in this case, you claim that the trustees are in breach of their duty to the objects of the charity because they failed to consider non-financial criteria in making investment decisions. Questions
In 1948 a committee of trustees was established to control and administer the Church of England's estates and funds that totaled approximately £2 billion. The committee was comprised of both clergy and laypeople that had the experience and expertise in managing funds. The trustees had the exclusive power and duty to act for the commissioners in regards to the management of the assets, including the power to sell, purchase, exchange, let land and make and change investments. It was imperative that the trust be handled carefully, not only because of its magnitude, but also because the funds paid for the clergy's stipends, housing and pension costs which absorbed nearly all of the yearly income from the fund. The underlying purpose of the trust was set out in the investment policy: to promote the Christian faith through the Church of England. Specifically, the commissioners' investment policy stated, "While financial responsibilities must remain of primary importance (given our position as trustees), as responsible investors we also continue to take proper account of social, ethical and environment issues…this means that we do not invest in companies whose main business is armaments, gambling, alcohol, tobacco and newspapers". In light of this policy, a number of commissioners had made requests to the trustees to reform their investment policies. In one case, the Bishop of Oxford proposed a prohibition on investment in groups of companies that derived more than £10 million in annual profits from South Africa or more than 3% of their worldwide profits from South African activities. However, these suggested prohibitions would have excluded 24% of UK companies, including 65% of the oil sector and 62% of the chemical sector. Because the proposed changes would make it nearly impossible to meet the fund's diversification requirements, the trustees rejected the proposal. Furthermore, the trustees had an investment policy in place concerning South Africa that already restricted 13% of investment in the UK. In a second case, a number of commissioners suggested that a portion of land be made available for low-cost housing at a price below open-market value. This was meant to fulfill the Christian requirement of meeting the needs of the local people. However, this investment would be detrimental to the fund. Instead, investing in a more expensive housing development would generate higher levels of return for the fund. As a defendant in this case, you claim that non-financial criteria will be considered only when they do not significantly alter the financial benefit of the fund. Questions
This case concerns whether the trustees of a charity fund should prioritize moral concerns over financial matters in making investments. The defendants in the case are a board of trustees that are responsible for the Church of England's estates and funds that total approximately £2 billion. The board of trustees is composed of both clergy and laypeople that have the experience and expertise in managing funds. It was imperative that the trust be handled carefully, not only because of its magnitude, but also because the funds paid for the clergy's stipends, housing and pension costs which absorbed nearly all of the yearly income from the fund. The trustees are guided by an investment policy that states, "While financial responsibilities must remain of primary importance (given our position as trustees), as responsible investors we also continue to take proper account of social, ethical and environment issues…this means that we do not invest in companies whose main business is armaments, gambling, alcohol, tobacco and newspapers". In light of this policy, some of the Church commissioners have requested that the trustees make particular investment decisions. For instance, the Bishop of Oxford urged the trustees to prohibit the investment in companies that derived more than £10 million in annual profits from South Africa or more than 3% of their worldwide profits from South African activities. If the proposal was adopted, it would exclude 24% of UK companies, including 65% of the oil sector and 62% of the chemical sector. The trustees did not adopt this policy because it would make it nearly impossible to meet the fund's diversification requirements. A second proposal was made concerning the selling of land at a price below open-market value. The Church commissioners proposed that the trustees sell the land and invest in low-cost housing to benefit the local community. The proposal was also rejected by the trustees as it would be unprofitable for the fund. The plaintiffs allege that the trustees have breached their duties to the fund by excluding non-financial criteria from their decisions. The defendants claim that their first priority must be safeguarding the financial interests of the fund. Questions
Sir Donald Nicholls, Vice Chancellor, affirmed that the trustees' duty is to carry out an investment policy to obtain the maximum return on the investment, based on well established investment criteria and expert advice. The Judge commented "They must not use property held by them for investment purposes as a means for making moral statements at the expense of the charity of which they act as trustees." However, the Judge noted a number of exceptions to this rule: 1. Conflicts with the objects of the charity 2. Hampering the charity's work 3. Conflicting moral views of some beneficiaries |
