Teaching Corporate Fiduciary Duties in a Basic Business Associations Course [heavy sigh]

Well, here we are at the end of another semester.  I just finished teaching my last class in our new, three-credit-hour, basic Business Associations offering.  (Next semester, I take my first shot at teaching a two-credit-hour advanced version of Business Associations.  More to come on that at a later date.)  The basic Business Associations course is intended to be an introduction to the doctrine and norms of business associations law--it is broad-based and designed to provide a foundation for practice (of whatever kind).  I hope I didn't make hash out of everything in cutting back the material covered from the predecessor four-credit-hour version of Business Associations . . . .

I find teaching fiduciary duty in the corporations part of the basic Business Associations course more than a bit humbling.  There is a lot there to offer, and one can only cover so much (whether in a three-credit-hour or four-credit-hour course format).  Every year, I steel myself for the inevitable questions--in class, on the class website (TWEN), and in the post-term review session (scheduled for today at 5 PM)--about the law of fiduciary duty as it applies to directors.  This past weekend, I received a question in that category on the course website.  In pertinent part, it read as follows (as edited for fluency in some places):

I am having problems with understanding the duty of loyalty for directors.

First, . . . I don't think I know which transactions are breaches of loyalty. Do they include interested director transactions, competition, officer's compensation, and not acting in good faith? Second, do care, good faith, and loyalty all require that the directors be grossly negligent? I think I am just confused on the standard to determine whether a director has breached the duty of loyalty and/or care.  

Also, I have in my notes "use the entire fairness test" . . . .

 

You get the picture.  It's hard to resist the temptation to re-teach the entire part of the course on corporate fiduciary duties when one gets a question/series of questions like this.  I did, in fact, resist.  I will spare you the entire substance of my response (unpacking the ways to think through the question presented using the material we covered in the course), but here are the key, process-oriented paragraphs:

 

 . . . It is somewhat meaningless, except by example, to focus on "transactions" that breach the duty of loyalty.  Among other things, not all breaches of duty occur in the context of transactions.  Fiduciary duty is an obligation that the board carries with it in conducting its activities in managing the business and affairs of the corporation.

 

 . . .

 

That's a long answer to your question, but I sensed that you needed to slow down and remember (1) what fiduciary duty is and (2) where it comes from before you started to think about (3) circumstances in which litigants have claimed breaches of those duties (not all transactions) and (4) ways in which courts have treated those claims.  Separate out these four things and review the cases (and sparse related statutory law) we have covered to ensure that you "see" all this.  You may decide I have over-simplified here (and I have).  But it should help get you back on a productive path.

 

How do you answer questions like this when they are posed to you at the end of the semester?  I am always looking to get better at what I do in and outside the classroom, and since I know I will get these kinds of questions every time I teach the course (varying somewhat in content from year to year and student to student), I am interested in learning how others approach this type of question.  I am all ears, so fill them with ideas . . . .