Corporate Officers as Agents
34 Pages Posted: 2 Feb 2017
Date Written: February 1, 2017
Although officers are crucial to corporate operations, scholarly and theoretical accounts tend to slight officers and amalgamate them with directors into a single category, "managers." This essay anchors officers within the common law of agency-as does black-letter law-which crisply differentiates officers from directors. Understanding that agency is central of the legal account of officers' positions and responsibilities is crucial to seeing why, like directors, officers are fiduciaries, but distinctively so, not as instances of generic "corporate fiduciaries." Officers, like directors, owe duties of loyalty, but also particularized duties of care, competence, and diligence. Additionally, officers' duties of performance encompass two distinct to agency law: a duty to comply with reasonable instructions and a duty to share material information with the board of directors and others within the corporation. These furnish the legal underpinning for a corporation's ability to exercise control over its officers' actions.
Anchoring the account of officers within agency law also helps clarify whether the presumptions embodied in the business judgment rule should apply to officers, not just directors, as well as the standard for liability when an officer's breach of a duty of performance causes loss to the corporation. The essay argues that when an officer breaches a duty of performance, the standard for liability should be the same as for non-officer agents who provide similar services, not the more-forgiving standard of gross negligence applicable to a director's breach of the generalized duty of care owed to the corporation. The rationale is that agency focuses on gaps between actual performance and the reasonable expectations held by a principal who chose to be represented by a particular agent, one who had (or who claimed to have) particular skills and experience. Casting officers within an agency framework, additionally, furthers directors' robust right to rely on officers, as well as underscoring the potential role of prior agreement between agent and principal to define the terms of engagement. Finally, seeing officers as agents can help resolve disputes stemming from the definitional fluidity of "officer" within corporate law; many cases, applying the robust doctrine of apparent authority, address the consequences of appointing agents to positions with particular titles or authority with a conventionally-understood scope.
Keywords: corporate officer, agency, business judgment rule, fiduciary
JEL Classification: K20, K22
Suggested Citation: Suggested Citation