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Debunking the Corporate Fiduciary Myth
| Content Provider | Semantic Scholar |
|---|---|
| Author | Alces, Kelli A. |
| Copyright Year | 2009 |
| Abstract | I. INTRODUCTION II. CORPORATE FIDUCIARY DUTIES A. What are Fiduciary Duties? B. To Whom Are Fiduciary Duties Owed? C. Duty of Loyalty 249 D. "Duty" of Care 250 E. Good Faith? 252 F. Summary 256 III. APPLYING THEORIES OF FIDUCIARY DUTIES AND FIDUCIARY RELATIONSHIPS A. Evolving Away from Corporate Fiduciary Duties B. Reliance Theory 259 C. Agency Costs 262 1. Acceptance of Position of Trust and Power 2. Abuse of Power a. Theft b. Insider Trading 3. Open-Ended Control a. Looking over Their Shoulders b. Don't Be Conflicted Without Permission 4. Summary D. Fiduciary Relationships v. Contracts IV. REPLACING FIDUCIARY DUTIES WITH CONTRACT TERMS A. Why are We Still So Preoccupied with Fiduciary Duties? B. All Investors Created Equal Bargain for Different Rights and Roles C. Equity Trustee 278 D. Enforcing Corporate Contracts V. CONCLUSION I. INTRODUCTION The doctrine of corporate fiduciary obligation-which holds that corporate officers and directors are fiduciaries of the corporation and its shareholders and are disciplined primarily through the enforcement of fiduciary duties-has been the core basis of all corporate law. However, today that doctrine is little more than a fiction. The emperor wears no clothes. The common law has developed in such a way that the relationship among corporate officers, directors, and the firm should no longer be characterized as a fiduciary one. Corporate managers (1) are not entrusted with "open-ended" control, (2) and corporate practice has gone beyond the expectation that managers will put the shareholders' or corporation's best interests before their own. It is now customary to assume that managers will hold their own personal interests paramount and to exploit that self interest by using incentive compensation as a way to direct managerial behavior and decision-making. Such employment incentives and market forces do far more to monitor corporate decision makers than any supposed sense of loyalty or fiduciary obligation. When market forces can or do adequately constrain agency costs, the relationship in question is no longer properly regarded as fiduciary' (3) At first blush, applying fiduciary principles to corporate governance seems like a natural fit. The officers and directors of a corporation do not own the corporation or its assets. Instead, they manage them for the benefit of the corporation's investors. A fiduciary relationship often exists when one person or entity is entrusted with acting for the benefit of another and so is called upon to eschew self interest in favor of the best interests of the beneficiary. (4) When one person or entity is entrusted with a power over the well being of another, the potential for abuse of that power can define the relationship as fiduciary' (5) Fiduciary relationships are, therefore, defined by the relative vulnerability of the beneficiary. The efficacy of the fiduciary obligation is not in providing every particular of faithful fiduciary behavior; rather, it is the opposite-trusting the fiduciary's judgment and having the flexibility to check the fiduciary's behavior any time it deviates from serving the beneficiary faithfully. Such flexibility has long made fiduciary duties an effective way to monitor those who have been granted open-ended control over the assets or well being of others. Beneficiaries want to rely on someone else's expertise and think it is in their best interests to trust, rather than directly control, the fiduciary. This focus on trust rather than direct monitoring or control is the hallmark of fiduciary law. This Article does not suggest that the concept of fiduciary obligation is not important to corporate law. (6) However, instead of serving as a guiding principle for corporate doctrine, fiduciary principles are the obstacles around which much of the law of corporate governance must maneuver. … |
| Starting Page | 239 |
| Ending Page | 239 |
| Page Count | 1 |
| File Format | PDF HTM / HTML |
| Volume Number | 35 |
| Alternate Webpage(s) | https://ir.law.fsu.edu/cgi/viewcontent.cgi?article=1548&context=articles |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
