Empowering Courts in Corporate Law

Corporate law recognizes the twin duties of care and loyalty, but treats the two very differently. Cases involving the duty of care receive very deferential review under the business judgment rule, if any at all, in light of exculpation provisions in corporate charters, while cases involving the duty of loyalty receive more demanding review under the entire fairness test. A fiduciary has the duty to act in the interests of the beneficiary in all relevant respects. In other words, both care and loyalty, as well as any other fiduciary duties that exist, are all merely aspects of the one overarching fiduciary duty to pursue the interests of the beneficiary. Courts and legislatures-have imposed significant restrictions on shareholder litigation. Requiring the courts to conclude that directors are actually misbehaving to find a breach of fiduciary duty is inappropriate because the courts generally will be unwilling to do so. We can empower the courts by allowing them to say, no-this is a bad idea, rather than requiring them to say, no-you are a bad person