Fiduciary Duties of Directors

Although the Delaware code - and the corporate codes of all the other states for that matter - do a good job of describing the corporate form and the mechanics of operating this form, with the exception of perhaps §144, the code says precious little about the standards to which boards of directors who are managing the corporation will be held. This is so because corporate fiduciary duties are a product of the common law and not statute. In the following sections we examine the various core duties of corporate directors. These duties are entirely consistent with the fiduciary obligations of agents, which you studied in a previous module in this course.

Directors have a "fiduciary" relationship to the corporation and its residual claimants (i.e. common stockholders). What does it mean to call someone a fiduciary and what does being a fiduciary entail? Being a fiduciary usually requires that there be a person who has control over an asset not belonging to them. A fiduciary has an obligation to manage that asset for the exclusive benefit of the other person. Being a fiduciary with responsibility for an asset is not the same as owning an asset. When one owns an asset for themselves, what they do with it is of no one else's concern. If they want to fritter it away, that's on them.

A fiduciary who manages an asset on behalf of a beneficiary, on the other hand, must have an "other regarding mindset." An other regarding mindset requires that the fiduciary put the interests of the beneficiary over their own.The fiduciary cannot profit off their management of the beneficiary's asset. The fiduciary must treat the asset placed in their hands by the beneficiary with a degree of attention and requisite care. Finally, the fiduciary must see that the beneficiary's asset is not subject to waste or looting by a third party. In all of these aspects, the fiduciary remains accountable to the beneficiary, to whom they owe a duty, for any failures.