Officers' Fiduciary Duties and the Nature of Corporate Organs

23 Pages Posted: 2 Aug 2013

See all articles by Amitai Aviram

Amitai Aviram

University of Illinois College of Law

Date Written: May 6, 2013

Abstract

The nature of officers’ fiduciary duties (and in particular whether the Business Judgment Rule applies to officers) is the subject of heated scholarly debate and conflicting case law. This Article analyzes the question using a neglected conceptual tool: the corporate organ.

Corporate organs are bodies that act on behalf of the corporation but are not subject to its control and thus are not governed by agency law (the board of directors is the prototypical organ). This Article argues that corporate organs differ from, and complement, the other type of corporate actor (corporate agents) in the allocation of discretion whether to approve acts that are in the fiduciary duty penumbra. For agents, this oversight function is given to the beneficiary (the principal); for organs, it is given to judges.

The nature of an officer’s fiduciary duties depends on whether oversight by the beneficiary, or by judges, would maximize accountability. The answer differs between officers, so in contrast to the arguments of both sides of the debate, officers should not be uniformly classified as agents or organs. Such classification is best left to private ordering. Extant law allows for such private ordering but provides officers with an incentive to maintain an ambiguous status. This Article suggests tweaks to the law that would incentivize officers to self-select their status as organs or agents.

Keywords: corporate organ, principal-agent, fiduciary duties, business judgment rule, corporate officer

JEL Classification: D23, D78, K22, K41, L21

Suggested Citation

Aviram, Amitai, Officers' Fiduciary Duties and the Nature of Corporate Organs (May 6, 2013). University of Illinois Law Review, Vol. 2013, No. 3; Illinois Program in Law, Behavior and Social Science Paper No. LBSS14-04; Illinois Public Law Research Paper No. 13-49. Available at SSRN: https://ssrn.com/abstract=2304810

Amitai Aviram (Contact Author)

University of Illinois College of Law ( email )

504 E. Pennsylvania Avenue
Champaign, IL 61820
United States

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