The Challenge of Company Stock Transactions for the Directors' Duties of Loyalty

50 Pages Posted: 7 Jun 2006

See all articles by Cindy A. Schipani

Cindy A. Schipani

University of Michigan, Stephen M. Ross School of Business

Dana M. Muir

University of Michigan - Stephen M. Ross School of Business

Abstract

This Article explores the intersection of state and federal law in defining corporate directors' duties of loyalty to shareholders and obligations to 401(k) plan beneficiaries. Part I describes the duty of loyalty in trust law, upon which loyalty obligations in state corporate law and federal ERISA law are based. Part II explores the evolving role of the duty of loyalty in Delaware corporate law. Part III analyzes the loyalty obligations that the ERISA law imposes and examines the application of loyalty principles in 401(k) employer stock litigation. Part IV scrutinizes how Delaware jurisprudence and ERISA law diverge and argues that enhanced scrutiny should apply to transactions in which fiduciaries suffer from a "substantial lack of independence." The authors argue that limiting enhanced scrutiny to situations of self-dealing in the transaction itself fails to properly protect shareholders and conclude that their proposal offers increased flexibility and effectiveness in protecting beneficiaries and shareholders from self-interested fiduciaries.

Keywords: fiduciary duties, corporate governance, ERISA, company stock, loyalty, employee benefits

JEL Classification: K22, K31

Suggested Citation

Schipani, Cindy A. and Muir, Dana M., The Challenge of Company Stock Transactions for the Directors' Duties of Loyalty. Harvard Journal on Legislation, Vol. 43, p. 437, 2006, Available at SSRN: https://ssrn.com/abstract=906805

Cindy A. Schipani (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States
(734) 763-2257 (Phone)
(734) 763-2257 (Fax)

Dana M. Muir

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
313-763-3091 (Phone)
313-936-8715 (Fax)

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