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The Sarbanes-Oxley Act and Fiduciary Duties


Lyman Johnson


Washington and Lee University - School of Law; University of St. Thomas, St. Paul/Minneapolis, MN - School of Law

Mark A. Sides


Faegre & Benson, LLP


William Mitchell Law Review, Vol. 30, No. 4, 2004

Abstract:     
This article explores the implications of the Sarbanes-Oxley Act of 2002 for fiduciary duty analysis in corporate law. The article examines those provisions of the Act, and recent SEC, NYSE and NASDAQ rules, that most pointedly bear on corporate governance. The article develops in detail exactly how Sarbanes-Oxley and those rules may alter state fiduciary duty law. Sarbanes-Oxley makes unprecedented federal inroads into the area of corporate governance and, although the fact of federal incursion into corporate governance is important in its own right, the more intriguing issue concerns the eventual interplay between federal and state law. Specifically, on various subjects will federal law wholly supplant, or merely supplement, state law? After first describing those recent regulatory initiatives most likely to raise fiduciary duty issues, we describe the fiduciary duties of directors, giving special attention to the emerging obligation of good faith, and highlight the often-overlooked fiduciary status of corporate officers. We note critical differences between breach of fiduciary duty claims against corporate officers and such claims against directors.

We identify those few specific areas where Sarbanes-Oxley pre-empts inconsistent (and weaker) state fiduciary concepts, either in whole or in part. We also identify areas where the mandates of Sarbanes-Oxley, though lacking pre-emptive force, will be highly influential in state fiduciary duty analysis. We conclude, however, that state law will remain preeminent in the fiduciary duty area. This is because state law remains the lingua franca into which the mandates of Sarbanes-Oxley must inevitably be translated for fiduciary duty purposes. We therefore reject the view that Sarbanes-Oxley has somehow federalized the area of corporate fiduciary duty law. To be sure, federal law now plays a more significant role in corporate governance. The overall result of Sarbanes-Oxley in the corporate fiduciary duty area, however, is greater federal influence in a federalism arrangement in which fiduciary duties remain rooted in and dominated by state law.

Number of Pages in PDF File: 66

Keywords: Sarbanes-Oxley, fiduciary duties

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Date posted: April 15, 2004  

Suggested Citation

Johnson, Lyman and Sides, Mark A., The Sarbanes-Oxley Act and Fiduciary Duties. William Mitchell Law Review, Vol. 30, No. 4, 2004. Available at SSRN: http://ssrn.com/abstract=528523

Contact Information

Lyman P. Q. Johnson (Contact Author)
Washington and Lee University - School of Law ( email )
Lexington, VA 24450
United States
540-458-8515 (Phone)
540-458-8488 (Fax)
University of St. Thomas, St. Paul/Minneapolis, MN - School of Law
MSL 400, 1000 La Salle Avenue
Minneapolis, MN Minnesota 55403-2005
United States

Mark A. Sides
Faegre & Benson, LLP
370 17th St., #2500
Denver, CO 80202
United States
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