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The New Concept of Loyalty in Corporate Law

UC Davis Law Review, Vol. 43, 2009

72 Pages Posted: 17 May 2009 Last revised: 20 Dec 2009

Andrew S. Gold

DePaul University College of Law

Date Written: May 17, 2009


Traditionally, the fiduciary duty of loyalty is implicated where corporate directors have conflicts of interest. In a major new decision, Stone v. Ritter, the Delaware Supreme Court determined that directors may also be disloyal when they act in bad faith. As a consequence, directors may be disloyal even when they have no conflicts of interest, and even when they intend to benefit their corporation. This Article reconciles this expanded fiduciary obligation with existing concepts of loyalty. The new loyalty is not incoherent. Courts have adopted a recognizable understanding of loyal behavior - being "true" - that exists in other social spheres. Under this conception, loyal directors must not only act in the best interests of their corporation and its shareholders, they must also be honest with shareholders and comply with positive law.

This Article then offers insights into the function of these expanded fiduciary duties. Although the new loyalty duties pose risks, there are good reasons to think they will provide net benefits. Following the recent Lyondell decision, it appears that the Stone case and its progeny will not result in significant revisions to the business judgment rule. However, the recent change in a director’s loyalty obligation may substantially lower information costs, giving better guidance to directors and simplifying coordination. In addition, the new conception of loyalty can also serve an important expressive function, enabling a more efficient level of trust among corporate actors, investors, and those who transact with the firm.

Keywords: duty of good faith, duty of loyalty, business judgment rule, disney, stone v. ritter, lyondell

Suggested Citation

Gold, Andrew S., The New Concept of Loyalty in Corporate Law (May 17, 2009). UC Davis Law Review, Vol. 43, 2009 . Available at SSRN:

Andrew Gold (Contact Author)

DePaul University College of Law ( email )

25 E. Jackson Blvd.
Chicago, IL Cook County 60604-2287
United States
312-362-5927 (Phone)

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