In search of the nature and function of fiduciary loyalty of company directors: Some observations on Conaglen’s analysis

Abstract

Good corporate governance requires high standards of directors’ responsibilities. Directorial behaviour is often measured against conventional notions of fiduciary duties of directors. But fiduciary law is in a state of flux: although the core obligation of a fiduciary is an obligation of loyalty, what “fiduciary loyalty” encompasses is less clear. Conaglen recently suggests that the function of fiduciary loyalty is to protect nonfiduciary duties, and its nature is prophylactic and subsidiary. To directors, this means that a fiduciary duty of loyalty is imposed to protect performance of their other (non-fiduciary) duties such as the duty to act in the company’s best interests. This paper contends that his analysis is not supported by case law and creates a number of inexplicable implications for the fiduciary doctrine.. In the final analysis, a firm grip on the concept of “fiduciary loyalty” is essential before any corporate governance reforms can intelligently shape expectations for directors’ conduct.