Taking the 'I' Out of 'Team': Intra-Firm Monitoring and the Content of Fiduciary Duties

Abstract

This article employs a account of the firm to investigate the relationship between organizational structure and fiduciary duties. Although the fiduciaries or firms (such as partnerships and close corporations) have historically been held to stricter standards of comportment than have their counterparts in widely-held firms (such as public corporations), a team-production analysis raises some troubling questions about this traditional distinction. In particular, I shall argue that within closely-held firms, enhanced fiduciary duties can create inefficient monitoring incentives among team members -- a problem that is largely avoided within widely-held organizational structures. Moreover, these strategic costs imply that weaker rather than stricter fiduciary obligations are more appropriate within at least certain closely-held firms. This observation holds a number of practical implications, both for statutory law and for doctrinal development.