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Andrew F. Tuch

In the 1970s and 1980s, as major financial institutions grew and diversified their operations, courts and scholars recognized that fiduciary law posed profound challenges for the organizational practices of these firms. The challenges were considered existential by some: firms, ultimately, would need to slim down their operations, and perhaps even need to disaggregate some units, to avoid fiduciary liability. However, since these challenges were recognized, financial conglomerates have grown massively and focused more on taking direct stakes as principals, a practice that accentuates the risk of conflicts of interest. This chapter examines how financial conglomerates were able to continue growing and diversifying despite the imposition of fiduciary constraints seen as robust. It considers potential explanations including the contractual erosion of fiduciary principles, the regulators’ and courts’ legitimation of information barriers as checks on conflicts, the molding of fiduciary law by regulation, the non-enforcement of fiduciary duties by clients, and the shift toward arbitration of client disputes. The chapter rejects the view that the contractual erosion of fiduciary law explains weaknesses in the practical effect of fiduciary doctrine and instead points to more pragmatic explanations, focusing particularly on factors that inhibit parties from enforcing fiduciary duties. In considering these explanations, the chapter engages with scholarship that has observed the diminished force of fiduciary law in recent decades.