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The case regarding Hermes fund management supports a much larger and contentious theme regarding investment management. Are managers responsible for the social initiatives of their shareholders? More important is it a fund manager's duty to uphold the social and political aspirations of their shareholders. As the case illustrates, the duty to both shareholders and society is indeed a fine line.
In regards to the case Hermes is correct in its activist stance towards investing so long as it benefits the shareholders in which they represent. As the case illustrates, Hermes has many risks that it must properly navigate in order to provide capital preservation for its shareholders. One such is risk is reputational in nature. As Total continues to conduct business in controversial countries, Hermes is subject to various risks to its reputation, which could ultimately cause redemptions in its funds.
However in regards to many of the more subjective risks, Hermes should not interrupt the business operations of the firms in which they invest. The primary purpose of business is to generate profits for its owners. Milton Friedman, himself taught this concept extensively throughout his prestigious career. As such many of the more socially or morally correct governance practices should not be pursued by Hermes fund managers. For one, the fund undoubtedly has numerous shareholders. As one of the better known firms in the industry, the firm is responsible for management activities for individual investors, endowments, and pension funds. As such, the firm does not have the right to promote social issues that it deems necessary. By doing so, the firm alienates one section of investors in favor of another. This is not the firm's duty. Instead, if the firm is doing its job in regards...
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