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Opportunity-Cost Conflicts in Corporate Law

59 Pages Posted: 14 Jan 2016  

Abraham J. B. Cable

University of California Hastings College of the Law

Date Written: January 12, 2016

Abstract

Delaware corporate law has a new brand of loyalty claim: the opportunity-cost conflict. Such a conflict arises when a fiduciary operates under strong incentives to withdraw human and financial capital for redeployment into new investment opportunities. The concept has its roots in venture capital investing, where board members affiliated with venture capital funds may have incentives to shut down viable start-ups in order to focus on more promising companies.

Recognizing this type of conflict has conceptual value — it provides a coherent framework for assessing a fiduciary’s incentives, and it may help explain frequently criticized features of corporate fiduciary law. But this article argues that courts should invoke the doctrine sparingly to avoid upsetting the law’s current balance between policing managerial abuse and litigation abuse.

Keywords: Trades, venture capital, fiduciary duties

JEL Classification: G34, K22, K41

Suggested Citation

Cable, Abraham J. B., Opportunity-Cost Conflicts in Corporate Law (January 12, 2016). Case Western Reserve Law Review, Vol. 66, No. 1, 2016. Available at SSRN: https://ssrn.com/abstract=2714606

Abraham Cable (Contact Author)

University of California Hastings College of the Law ( email )

200 McAllister Street
San Francisco, CA 94102
United States

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