The Three Fiduciaries of Delaware Corporate Law - And Eisenberg's Error
Fiduciary Obligations in Business(A. Laby & J. Russell, eds., Cambridge University Press, 2020
31 Pages Posted: 5 Dec 2019 Last revised: 1 Jul 2020
Date Written: 2019
This chapter argues that corporate law is unique in a way that is not widely recognized, and is not unique in the way it is widely thought to be.
First, unlike other fields of law where fiduciary obligations play a key role, in corporate law, not one, not two, but three distinct actors owe fiduciary duties - executive officers, directors, and controlling shareholders. The beneficiaries of those actors' duties, the reasons for imposing duties, and the scope and demands of fiduciary duties differ for the three actors. Thus, there is not a singular duty of care and loyalty in Delaware corporate law, but multiple variations of those duties owed by multiple actors. Delaware has a law of fiduciaries, not a fiduciary law.
Second, this chapter challenges the supposed standard of conduct-standard of review divergence first hailed in 1993 by Professor Melvin Eisenberg as unique to corporate law. The construct was descriptively inaccurate as a matter of corporate law doctrine when Professor Eisenberg first wrote, it has been little used by the Supreme Court since then - only one Supreme Court decision since 1993 uses both "standard of conduct" and "standard of review" in the same opinion - and the standards often converge rather than diverge. Where divergence does exist - infrequently - it is doubtful that unenforced standards of conduct can properly be considered to be "law" or that such divergence serves any useful purpose.
Keywords: corporations, corporate law, fiduciary, fiduciary duty, Delaware corporate law
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