Is the Corporate Director's Duty of Care a 'Fiduciary' Duty? Does It Matter?

Christopher M. Bruner

Washington and Lee University - School of Law

November 22, 2013

Wake Forest Law Review, Vol. 48, p. 1027, 2013
Washington & Lee Legal Studies Paper No. 2014-11

While reference to "fiduciary duties" (plural) is routinely employed in the United States as a convenient short-hand for a corporate director's duties of care and loyalty, other common-law countries generally treat loyalty as the sole "fiduciary duty." This contrast prompts some important questions about the doctrinal structure for duty of care analysis adopted in Delaware, the principal jurisdiction of incorporation for U.S. public companies. Specifically, has the evolution of Delaware's convoluted and problematic framework for evaluating disinterested board conduct been facilitated by styling care a "fiduciary" duty? If so, then how should Delaware lawmakers and judges respond moving forward?

In this Essay I argue that styling care a "fiduciary" duty has impacted Delaware's duty of care analysis in ways that are not uniformly positive. Historically, loyalty has been aggressively enforced, while care has hardly been enforced at all - the former approach aiming to deter conflicts of interest through probing analysis of "entire fairness," while the latter aims to promote entrepreneurial risk-taking through a hands-off judicial posture embodied in the business judgment rule. Conflation of these differing concepts as "fiduciary duties," however, has facilitated a tendency toward over-enforcement of care, periodically threatening to impair entrepreneurial risk-taking until arrested by a countervailing legislative or judicial response. Additionally, their conflation threatens to erode the duty of loyalty by fueling the contractarian argument that the sole utility of such "fiduciary duties" is to fill contractual gaps, and that corporations therefore ought to possess latitude to "opt out" of loyalty to the degree already permitted with respect to care.

While I concede that there may be good reasons not to abruptly recharacterize Delaware's duty of care as "non-fiduciary," I conclude that the analytical problems described in this Essay can otherwise be remedied only through a statutory provision more clearly distinguishing these differing duties and enforcement strategies. Specifically, I advocate a statutory damages rule declaring once and for all that monetary damages may be imposed on a corporate director for loyalty, but not care, breaches - an approach effectively discarding much of Delaware's multi-layered and convoluted mode of care analysis, while insulating the duty of loyalty from future erosion.

Number of Pages in PDF File: 28

Keywords: duty of care, duty of loyalty, business judgment rule, fiduciary duties, good faith, exculpation, corporate law, corporate governance, United Kingdom, Companies Act

JEL Classification: K22

Accepted Paper Series

Download This Paper

Date posted: November 27, 2013  

Suggested Citation

Bruner, Christopher M., Is the Corporate Director's Duty of Care a 'Fiduciary' Duty? Does It Matter? (November 22, 2013). Wake Forest Law Review, Vol. 48, p. 1027, 2013; Washington & Lee Legal Studies Paper No. 2014-11. Available at SSRN: http://ssrn.com/abstract=2358616

Contact Information

Christopher M. Bruner (Contact Author)
Washington and Lee University - School of Law ( email )
Lexington, VA 24450
United States
Feedback to SSRN

Paper statistics
Abstract Views: 1,187
Downloads: 251
Download Rank: 66,934

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo2 in 0.469 seconds