The importance of properly defining fiduciary responsibility can't be overemphasized. Look at it this way. When activists want to change a "system," they look for a strategic lever, something like the tiller on a sailboat. The idea is this: You move the tiller just a tad, and you can shift the direction of the entire boat. In this metaphor, of course, the tiller represents fiduciary responsibility and the boat represents our entire economic system.

With this in mind, Monks (who helped rewrite the Employee Retirement Income Security Act (ERISA) law during a short stint at the Labor Department in the mid-'80s) and others have clamored for a broader definition of fiduciary duty. They claim retirees want not just enough money to sustain themselves but also a clean and civil world -- and not just for themselves and their children, but for their grandchildren and their grandchildren's grandchildren. "The trust does not exist in a vacuum," he says.

Enter Hawley and Williams, who now make a case for this kind of common sense by using the language of economics. What they suggest is profound: By ignoring environmental and social externalities, institutional investors are in fact abrogating their obligations as fiduciaries to the millions of American individuals on whose behalf they invest.

Let's be clear about this. It means that for fiduciaries to make the most money on behalf of their beneficiaries, companies need to stop creating negative externalities. In other words, they must do exactly what progressive activists want them to do! Not because they are nice guys, but because it is in the long-term interest of shareholders who own these companies.

The professors go on to argue that it is thus part of a fiduciary's job to become a social activist, too -- by engaging with corporations and taking action in the political arena to eliminate negative externalities like toxins in the environment and promote positive ones like education and training.

Some institutional investors seem to agree. Last November, Connecticut state Treasurer Denise Nappier convened a conference of institutional investors at the United Nations to demand that corporations disclose the impact of climate change on their operations and its risk to their financial statements. That followed on the heels of 2003's Carbon Disclosure Project, in which 87 (albeit, mostly European) investors representing $9 trillion in stock market capitalization queried the top 500 companies in the world about the impact on their market cap of their greenhouse gas emissions -- and what they were doing about it. That's up from 34 institutions representing $4.7 trillion that requested the same disclosure 18 months before.

In the lexicon of finance, as this makes clear, many SRI issues boil down to a question of "risk" and risk analysis -- something fiduciaries other than hedge funds don't normally engage in. "Risk analysis is as much art as science," Hawley says, pointing out that contingent legal liabilities from breaking the law or harming people are hard to calculate. "In my mind, Enron and all the standard corporate governance scandals are a form of unmonitored risk and were not adequately monitored by most funds."

Except by the screeners at various SRI funds. Most SRI funds avoided virtually all these so-called corporate governance scandals during the past two years. (All, that is, except Enron, admittedly the mother of them all. Of course, nobody's perfect.)

Julie Gorte, director of social research at the Calvert Group, says her fund's screens represent many areas of risk that many other investors don't pay attention to and that manifest themselves in the financial performance of companies. "We are really protecting our investors against some of those downside risks that have gone unrecognized by the market," she says, citing environmental performance as an example. "A company that is really good at managing its environmental footprint or taking proactive steps to keep pollution out of landfills or out of airsheds or watersheds is going to be better positioned almost no matter what for any new environmental legislation that comes down the pike."

Bruce Herbert, president of Newground Social Investment, a shareholder advocacy and asset management firm in Seattle, adds that social risk analysis also offers insight into "management foresightedness," a "subjective area" but one that is in fact the mark of successful companies. "Management that is thinking ahead in areas where it's not yet required to by the books," he says, "[is] likely to be looking ahead in all areas of [its] business."

Is this really rocket science? No. In fact, it suggests that certain types of social screening and analysis (though not all) by smaller-scale mutual and pension funds -- those not stuck invested in virtually the entire economy -- may well be a necessary component of fiduciary duty for the larger investors.

In other words, it's not just socially responsible investing. It is just plain vanilla responsible investing.

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