Fiduciary Principles and Delaware Corporation Law: Searching for the Optimal Balance by Understanding that the World is Not

Abstract

This Chapter, forthcoming in the Oxford Handbook of Fiduciary Law, examines the principles that animate Delaware’s regulation of corporate fiduciaries. Distilled to their core, these principles are to: give fiduciaries the authority to be creative, take chances, and make mistakes so long as their interests are aligned with those who elect them; but, when there is a suspicion that there might be a conflict of interest, use a variety of accountability tools that draw on our traditions of republican democracy and equity to ensure that the stockholder electorate is protected from unfair exploitation. After reviewing the evolution and institutional setting of the pertinent Delaware case law, the Chapter details how these principles have emerged in several high-salience contexts (the business judgment rule, controller freeze-outs, takeovers, and stockholder elections), and demonstrates that the identified principles aim to preserve the benefits of profit-increasing activities in a complex business world where purity is by necessity impossible. Further, the Chapter demonstrates that, even when a stricter approach to fiduciary regulation is warranted because of the potential for abuse, these principles hew to our nation’s republican origins and commitment to freedom in another way: when possible to do so, regulation of fiduciary behavior that might involve a conflict of interest should involve not after-the-fact governmental review, but before-the-fact oversight by the fiduciaries of the corporation who are impartial and, most importantly, by the disinterested stockholders themselves.