After Enron: Remembering Loyalty Discourse in Corporate Law

The demise of monetary damages as a remedy for breach of the corporate director duty of due care means that only a breach of the duty of loyalty or good faith affords the possibility of holding corporate directors personally liable for wrongdoing. The author argues that the fiduciary duty of loyalty contains both a widely appreciated, but rather minimal, non-betrayal aspect and a less appreciated, but more affirmative, devotion dimension. The affirmative. thrust of loyalty, grounded in widely-shared cultural norms and finding expression in myriad literary and religious stories, offers a doctrinal avenue for addressing a potentially broader range of director misconduct than is commonly thought. In a post-Enron world of corporate governance scandal and calls for reform, fiduciary duty law presents, as a policy matter, a possible state law-based approach for attaining greater director accountability. The wisdom of doing so will depend, in part, on whether the risk of greater financial exposure will induce enhanced discharge of director responsibilities, to the advantage of shareholders, or dissuade capable prospective director candidates from service, to the detriment of shareholders. At a more theoretical level, understanding the affirmative facet of both the social norm of loyalty and the legal duty of loyalty raises deeper questions such as whether the supposed conceptual distinction between care and loyalty is as clear as widely believed and whether corporate law fiduciary discourse should continue to be conducted in moral-sounding terms at all. This, in turn, depends on whether we sensibly conceive of directors as being moral actors and regard corporate relationships as raising moral issues, rather than just economic/financial issues for which a new (or re-loaded) discourse might be more suitable. The article closes by addressing how judges-to whom both the practical and the policy-theory issues have fallen-might explore the fuller reaches of loyalty. The article coins the notion of due loyalty to express the appropriate, context-sensitive demands of loyalty understood as devotion