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.

In Basho Technologies v. Georgetown Basho Investors (2018), Vice Chancellor Glasscock described claims for breaches of fiduciary duty as equitable torts in the following manner:

The basic elements of a common law tort claim are well known: The plaintiff must prove existence of a duty, a breach of that duty, injury, and a causal connection between the breach and injury that is sufficient to warrant a remedy, such as compensatory damages.

The equitable tort for breach of fiduciary duty has only two formal elements: (i) the existence of a fiduciary duty and (ii) a breach of that duty. The first element closely resembles the corresponding aspect of a common law tort claim: the plaintiff must prove by a preponderance of the evidence that the defendant was a fiduciary and owed duties to the plaintiff. The second element departs from the common law model in significant respects. For the traditional common law tort, the court analyzes the question of breach using the standard of conduct that the defendant director was expected to follow. 

For the equitable tort, the court evaluates the question of breach through the lens of one of several possible standards of review. In each manifestation, the standard of review is more forgiving of [defendant fiduciaries] and more onerous for [the] plaintiffs than the standard of conduct.

The following section describes the difference between the standard of conduct for corporate directors and the various standards of review that a court will deploy when evaluating a fiduciary duty claim.