(Not) Advising Corporate Officers about Fiduciary Duties

This Article explores the intersection of an important, unresolved corporate law issue and an overlooked professional responsibility issue persistently arising in the corporate milieu. The corporate law question currently unaddressed in Delaware law is whether the fiduciary duties of corporate officers, as agents, are the same as, or different from, the fiduciary duties of corporate directors. A related question is whether, in reviewing officer conduct, courts will apply the business judgment rule in the same broad (and protective) manner in which it is applied to assessing director behavior. The professional responsibility issue concerns whether, and how well, lawyers are advising corporate officers about their fiduciary duties. In recent years, much attention has been given to the professional obligations of a corporate lawyer upon learning, ex post, of corporate wrongdoing, including director and officer breaches of fiduciary duty. Virtually no attention has been paid to whether, ex ante, lawyers are adequately helping to prevent such misconduct by fully and properly advising corporate officers as to the scope and thrust of their fiduciary duties. Fiduciary duties, as an element for shaping officer conduct to promote healthy corporate governance, are of little preventive value if not properly transmitted to officers, given that officers are unlikely on their own to understand those duties. As is the case with directors, lawyers are the obvious means by which such communications to officers would be expected to occur. How well are they fulfilling this vital role? We obtained information on this subject in two ways. First, as a pilot project we sent a survey questionnaire to corporate lawyers serving primarily as outside legal counsel in major U.S. metropolitan areas. We intend to later survey in-house counsel by means of a separate questionnaire. Second, we examined the websites of fifteen major law firms to learn what they say about themselves on the topic of advising corporate officers as to fiduciary duties. Overall, the results from our initial survey and website research suggest that many lawyers do not provide full-bodied fiduciary duty advice to officers in their capacity as officers at all, much less advising them as to the possibility that their duties might be stricter than those of directors or cautioning that the business judgment rule may not apply to officer conduct in the same way it applies to directors. The paper also offers several reasons why lawyers should advise corporate officers as to their fiduciary duties. Doing so serves to highlight the key governance role played by officers, thereby partially re-directing corporate law\u27s customary and inappropriately exclusive focus on directors. The paper closes by describing a proposed procedure for assuring directors that legal counsel is regularly providing fiduciary duty advice to senior officers