Research Handbooks in Law and Economics series
Edited by Claire A. Hill and Brett H. McDonnell
Claire A. Hill and Brett H. McDonnell 1. INTRODUCTION Fiduciary duties are at the heart of corporate law. Directors manage corporations, and officers do the day-to-day work; both are directed and constrained by the fiduciary duties they owe to their corporations and to shareholders (and perhaps other constituencies as well). In this chapter, we provide a brief overview of where fiduciary duty law has been, where it is now, and where we believe it is and should be going. A stylized version of fiduciary duty history carves the world into two types of duties: the duty of care and the duty of loyalty. The duty of care covers attentiveness; the duty of loyalty covers self-dealing. The former is a duty with few teeth, given that certificates of incorporation typically contain provisions relieving directors of liability for what would otherwise be breaches of the duty. Moreover, where decisions (or omissions) are at issue that might implicate the duty of care, courts are extremely deferential, in most cases declining to second-guess what directors and officers did. That being said, the duty of care remains enormously influential as a guide to and constraint on director and officer conduct. The duty of loyalty covers matters that appropriately invite significant scrutiny by courts – and carry a real risk of liability (Hill & McDonnell 2007a). But these two duties as classically articulated leave open a wide middle ground, where neither inattentiveness nor self-dealing is implicated, but director and officer conduct is not properly serving the interests it...
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