Taking the 'I' Out of 'Team': Intra-Firm Monitoring and the Content of Fiduciary Duties

Abstract

This article employs a "team-production" account of the firm to investigate the relationship between organizational structure and fiduciary duties. Although the fiduciaries of "closely-held" firms (such as partnerships and close corporations) have historically been held to stricter standards of comportment than have their counterparts in widely-held firms (such as public corporations), a team-production analysis raises some troubling questions about this traditional distinction. In particular, I argue that within closely-held firms, enhanced fiduciary duties can induce inefficient monitoring behavior among team members -- a problem that can largely be avoided within widely-held organizational structures. Moreover, these strategic costs may be sufficiently strong to imply that weak rather than strict fiduciary obligations are more appropriate within at least certain closely-held firms. This observation holds a number of practical implications for both statutory and doctrinal business law.