Torts in Corporate Law: Do Corporations Have a Fiduciary Obligation to Commit Torts?

Abstract:     
Corporate law and tort are in dramatic conflict. Tort seeks to compel tortfeasors to internalize the costs of the injuries they cause, to create incentives for economic actors to take appropriate care, and to express societal disapproval of inappropriately risky behavior. But tort law thinks of the world in largely individualistic terms that do not work effectively in the corporate world. Large economic actors inhabit a statistical world in which injuries do not result from unpredictable accidents so much as from fully predictable risks. The issue is not unintentional accidents resulting from carelessness but rather inevitable consequences of implicit or explicit cost-benefit analyses resulting in specific levels of preventable injuries. Tort law deals with these statistical injuries poorly if at all. Compounding the problem, current corporate law encourages corporate decision-makers to set aside the normal human processes of mutual concern that tort law seeks to encourage. Instead, corporate law directs decision-makers to consider only corporate profit (understood in an accounting sense) as a goal. Within this one-sided professional role, corporate law encourages managers to evade tort law's letter and spirit. Of the two laws, corporate law provides the stronger incentives, so reform is more likely to succeed if it begins by redefining corporate law fiduciary duties rather than merely imposing new tort law limits on corporate behavior.

Keywords: Corporate law, fiduciary duties, torts

JEL Classifications: D21, D22, D62, K13, K22, L21

Working Paper Series