To Call a Donkey a Racehorse—The Fiduciary Duty Misnomer in Corporate and Securities Law

A recurrent theme in corporate law is the presence of directors and officers owing fiduciary duties of care and loyalty to the respective companies they serve. Although not as visible in the securities law setting, concepts of fiduciary duty-like obligations arise with some frequency. While the rigorous application of fiduciary standards was applied in days of yesteryear, its adherence today largely is nonexistent. Nonetheless, courts continue to embrace language in their opinions that emphasizes the continued presence of fiduciary duty standards. Reality, however, strikes a very different key. In fact, standards of fiduciary duty have become greatly diluted in the corporate/securities setting — to the degree that they should no longer be characterized as being fiduciary-like. This article by the author of Rethinking Securities Law (Oxford University Press 2021) (awarded by American Book Fest the Best Law Book of 2021) explores this glaring gap between rhetoric and reality and proffers an alternative approach aligned with the present-day actuality of so-called fiduciary principles. The article thus explores the illusion that courts continue to embrace. First, the article addresses the multi-faceted contexts in which state courts cling to fiduciary duty principles in their rhetoric, yet apply far more lax standards in their liability assessments. Thereafter, a similar phenomenon is analyzed with respect to the application of the federal securities laws. The last part of the article advocates for the recognition of reality rather than imaginary characterizations, setting forth a cognizable framework for determining the appropriate liability thresholds that should be implemented