In an article appearing in the Wake Forest Law Review several years ago, I argued that Delaware’s nascent corporate law duty of “good faith” ought to be conceptualized as a component of the duty of loyalty, the logic being that the former conceptual vessel could contain no content not wholly redundant with the latter. This position—strenuously advocated for years by then-Vice Chancellor Leo Strine—was ultimately adopted by the Delaware Supreme Court in its 2006 Stone v. Ritter opinion. In the same piece, I further argued that Delaware ought to clarify the conceptual boundary between the corporate director’s duties of care and loyalty by adopting a statutory provision “permitting the imposition of monetary liability only for loyalty breaches, defined to include cases involving financial conflicts of interest, other improper personal benefits, conscious malfeasance, and conscious nonfeasance, the latter category representing those cases [now] styled by the Delaware courts as involving bad faith omission.” This position—clearly more controversial and far-reaching, effectively discarding much of Delaware’s multilayered and convoluted mode of analysis for the duty of care—has not been adopted by the Delaware General Assembly.
In this Essay I return to the topic, exploring further the merits of this proposal as well as the conceptual and practical impediments that might stand in the way—a reexamination prompted by comparative work on corporate governance in common law jurisdictions that I have undertaken in the intervening years. Though not emphasizing the duty of care as such, this comparative work brought to my attention a curious divergence in this area—unlike the United States, other common law jurisdictions including the United Kingdom, Australia, and Canada generally do not conceptualize the duty of care as “fiduciary” in nature. While the inquiry undertaken in this Essay focuses more intently on the United States, I discuss this divergence because it vividly demonstrates the noninevitability of characterizing the duty of care as a “fiduciary” duty while simultaneously suggesting that there may be practical utility in drawing a clear distinction between duties of care and loyalty in this manner.
Indeed, this contrast between the U.S. approach and that of other common law jurisdictions prompts some important questions about Delaware’s doctrinal structure. Specifically, has the evolution of Delaware’s convoluted framework for evaluating disinterested board conduct—involving an articulation of a duty of care, which was effectively negated by the business judgment rule, revived by the “gross negligence” standard for overcoming the business judgment rule, then negated again by statutory exculpation, yet potentially revived again by statutory exceptions to exculpation—been facilitated by styling the duty of care a “fiduciary” duty? If so, then what—if anything—ought Delaware lawmakers and judges to do about this problem moving forward?
I argue that styling care a “fiduciary” duty has in fact impacted the evolution of Delaware’s duty of care in ways that are not uniformly positive. Historically, the duty of loyalty has been more aggressively enforced, while the duty of care has hardly been enforced at all—the former approach aiming principally to reduce conflicts of interest through probing analysis of “entire fairness,” and the latter aiming principally to promote entrepreneurial risk taking through a hands-off judicial posture embodied most clearly in the business judgment rule. Conflation of these differing circumstances and problems as “fiduciary duties” (plural) or as twin reflections of a “fiduciary” concept (singular) has resulted in a tendency toward overenforcement of the corporate director’s duty of care, periodically threatening to impair entrepreneurial risk taking until arrested by a countervailing legislative or judicial response. Additionally, the conflation of care and loyalty threatens to facilitate erosion of the corporate director’s duty of loyalty (a trend readily discernible in noncorporate settings) by fueling the contractarian argument that the sole utility of “fiduciary duties” is to fill gaps in incomplete contracts—an argument suggesting that corporate stakeholders ought to have the same latitude to “opt out” of loyalty that they effectively possess with respect to care and that disloyalty involves no greater moral stigma than any garden-variety breach of contract.
While I ultimately concede that there may be no pressing imperative to restyle the duty of care in nonfiduciary terms moving forward—and that there may in fact be good reasons not to do so—I conclude that the analytical problems described in this Essay can otherwise be remedied only through a statutory provision that more clearly distinguishes these differing duties and enforcement strategies from one another, foreclosing their further conflation in a categorical manner.
