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 or "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 shall argue that within closely-held firms, enhanced fiduciary duties can create inefficient monitoring incentives among team members -- a problem that is largely avoided within widely-held organizational structures. Moreover, these strategic costs imply that weaker rather than stricter fiduciary obligations are more appropriate within at least certain closely-held firms. This observation holds a number of practical implications, both for statutory law and for doctrinal development.

JEL Classification: D21, D23, G34