Rethinking Corporate Fiduciary Duties: The Inefficiency of The Shareholder Primacy Norm

Abstract

Current judicial practice regards the fiduciary duties of corporate officials as running exclusively to the common shareholders, and not to the bondholders or preferred shareholders, or to the corporation as a whole. In this article, the author addresses the question of whether defining the corporation as a whole as the subject of these fiduciary duties would better promote economic efficiency. Ultimately, the author concludes that economic efficiency would be enhanced if the locus of corporate officials' fiduciary duties was redefined as running to the corporation, both for larger corporations with publicly-held securities and smaller corporations whose securities may be more closely held.

Keywords: corporate law, corporations, fiduciary duties, corporate directors and officers