Thursday, November 26, 2020
Evan J. Criddle recently published an article entitled, Stakeholder Fiduciaries, Wills, Trusts, & Estates Law ejournal (2020). Provided below is the abstract to the Article.
Legal scholars and judges often assert that fiduciaries bear a duty of “undivided loyalty” that precludes concern for self-interest. This chapter explores the limits of selfless loyalty in American fiduciary law by showing that the law often permits parties to serve as fiduciaries while also maintaining a beneficial interest in their own exercise of fiduciary power. I coin the term “stakeholder fiduciary” to describe these fiduciaries who are formal beneficiaries of their own exercise of fiduciary power. I argue that stakeholder fiduciaries are genuine fiduciaries despite the fact that they claim a beneficial interest in their own performance. But I also make the case that fiduciary law does (and should) treat stakeholder fiduciary relationships differently than non-stakeholder fiduciary relationships.
Stakeholder fiduciary law departs from non-stakeholder fiduciary law in two important respects. First, the fiduciary duty of loyalty applies differently to stakeholder fiduciaries, requiring not complete self-abnegation, but rather solidarity with other beneficiaries. This means that a stakeholder fiduciary may retain an equitable share of the profits she generates through her position—even when those profits are the product of conflicted transactions or misappropriated opportunities. More striking still, when a stakeholder fiduciary exercises voting rights in collective governance, she may vote solely in her own interests as long as she does not misuse her voting power to undermine the purposes of the fiduciary relationship or dominate other beneficiaries.
Second, courts repose a different kind of trust in stakeholder fiduciaries. When a non-stakeholder fiduciary is alleged to have violated her duty of care, courts do not ordinarily accord any deference to the fiduciary’s judgment. The same cannot be said of stakeholder fiduciaries: as long as a stakeholder fiduciary’s interests are plausibly aligned with the interests of other beneficiaries, courts allow the fiduciary to decide for herself how much time and energy she should devote to a particular decision. Taking into account the stakeholder character of certain fiduciary relationships therefore clarifies why courts apply a highly deferential standard of review to the decisions of some fiduciaries (e.g., business partners) but not others (e.g., investment managers). The best explanation, I argue, is that courts trust stakeholder fiduciaries to exercise reasonable care without intrusive judicial oversight precisely because these fiduciaries have a direct personal stake in their own performance.