Normative Justifications for Lax (or No) Corporate Fiduciary Duties: A Tale of Problematic Principles, Imagined Facts and Inefficient Outcomes

Corporate fiduciary duty standards are at an all-time low in this country. Ironically, the deterioration in standards has come to full maturity during the last two decades, a period of significant and notorious corporate managerial failures. The deterioration in the standards by which we measure the appropriateness of the actions of corporate managers has been fueled by influential judges\u27 and scholars\u27 ( Advocates \u27), who vigorously-and seemingly quite effectively-argue in favor of a lax fiduciary duty regime for corporate managers. Normative justifications for lax corporate fiduciary duty standards, however, are weak. The justifications fail to provide a persuasive reason to abandon the economic principle more widely applied in society: to hold actors accountable for the full economic loss caused by their actions as a way to incentivize efficient conduct. The broad purpose of this Article is to argue in favor of, and offer economic justifications for, a robust fiduciary standard for corporate managers. More specifically, the author addresses the two unchallenged and seemingly effective arguments of the Advocates for allowing corporate managers to act without accountability for the full economic loss caused by their mismanagement. The author’s intent is to show that the normative justifications offered by the Advocates in support of their arguments are founded on several essential factual assumptions that are unproven empirically, counterintuitive and, when unpacked and closely analyzed, seem highly improbable. In short, the factual assumptions offered in support of the Advocates\u27 arguments amount to a thin reed and do not meet the burden that should be required of those who propose abandoning or broadly limiting corporate managerial accountability. A strong version of corporate fiduciary duties promotes efficient and fair outcomes. Accountability on the part of corporate managers for their actions and decisions is integral to achieving these positive results. Without a regime that includes strong fiduciary duties and accountability for the full value of economic loss that results from managers\u27 decisions, achieving efficiency and fairness is less likely