The Case Against Officer Fiduciary Duties

Abstract

Fiduciary duties encourage loyalty, but too much loyalty can be harmful. For decades scholars have made the case that corporate managers’ singular focus on maximizing the share price is harmful to society more broadly. The law enforces this focus by imposing fiduciary duties on directors and officers owed to the shareholders. This article uses current research from behavioral ethics to show that eliminating the fiduciary duty owed by corporate officers to shareholders would (1) revitalize the internal incentives for moral corporate behavior and (2) shift corporate culture away from a moral obligation to maximize profits. This method is preferable to other stakeholder theories, which are more likely to increase the corporate officers' self-serving behavior. Officer fiduciary duties have never been fully reasoned through by courts, and they do not fit into the current theories of fiduciary duty law. Protection against rogue executives is better maintained through power dynamics and better enforced through the other legal theories examined in this paper. Eliminating officer fiduciary duties would reduce uninternalized moral costs, strengthen the theoretical framework around fiduciary duties and still leave shareholders fully protected through corporate governance.