Constituency Directors and Corporate Fiduciary Duties
Forthcoming: The Philosophical Foundations of Fiduciary Law (Andrew Gold & Paul Miller eds., Oxford University Press, 2014)
25 Pages Posted: 19 Oct 2013 Last revised: 12 Nov 2013
Date Written: October 17, 2013
In this chapter, we identify a fundamental contradiction in the law of fiduciary duty of corporate directors across jurisdictions, namely the tension between the uniformity of directors’ duties and the heterogeneity of directors themselves. Directors are often formally or informally selected by specific shareholders (such as a venture capitalist or an important shareholder) or other stakeholders of the corporation (such as creditors or employees), or they are elected to represent specific types of shareholders (e.g. minority investors). In many jurisdictions, the law thus requires or facilitates the nomination of what has been called “constituency” directors. Legal rules tend nevertheless to treat directors as a homogeneous group that is expected to pursue a uniform goal. We explore this tension and suggest that it almost seems to rise to the level of hypocrisy: Why do some jurisdictions require employee representatives that are then seemingly not allowed to strongly advocate employee interests? Looking at US, UK, German and French law, our chapter explores this tension from the perspective of economic and behavioral theory.
Keywords: constituency directors, codetermination, venture capital, fiduciary duties, corporate theory, theory of the firm, board of directors
JEL Classification: K22, G24
Suggested Citation: Suggested Citation