This introduction traces aspects of the history of fiduciary duties in business law and scholarship. Despite fiduciary law’s centrality to business law, the chapter describes how the contractarian revolution of the 1980s contributed to the marginalization of fiduciary duties, both in theory and doctrine. However, subsequent developments, both in case law and in scholarship, have questioned some of the core assumptions of the early wave of contractarian theory. The introduction outlines three critiques that scholars have levied against the early contractarians’ view of fiduciary duties, and connects these critiques to the eighteen chapters in the volume. The introduction also provides a roadmap of our contributors’ arguments.

Courts, practitioners, and academics alike have long considered corporate officers and directors to be fiduciaries of the public corporation and its shareholders. As corporate law has evolved, however, with the business judgment rule strengthening, the duties of care and loyalty narrowing in scope, and executive compensation schemes further introducing self-interest into corporate decision making, the fiduciary paradigm is no longer an accurate description of the nature of the relationship between corporate managers and the corporation. Corporate officers and directors have significant latitude to make decisions that take into consideration their self-interest while still satisfying their duties to the corporation. Further, the “best interests” of the corporate entity and its multitude of stakeholders are highly variable and often ill-defined, such that it would be impractical to pursue those interests as a singular goal. This Article argues that corporate officers and directors are not governed by fiduciary duties in the truest sense of the term. This misconceptualization inhibits an accurate understanding of the dynamics underlying corporate decision

This chapter critically examines the contractarian argument for the exclusive shareholder franchise. That argument comes out of the view that the corporation is merely a nexus of contracts among all the corporate constituents, and thus all have essentially agreed that shareholders alone should have voting and control rights. The nexus of contracts argument, though, is descriptively wrong, as corporations cannot be reduced to a set of contracts. Proponents fall back on using the concept as a metaphor, one that posits that “hypothetical” constituents would, if given the chance, all bargain for such an arrangement, but this, too, misdescribes actual constituent preferences and admits of too many degrees of freedom. The final part of the chapter examines the new corporate contract, where the contract metaphor has been redeployed to describe the role between shareholders and the board. This, like the nexus of contracts conception that it springs from, is also descriptively wrong and normatively hollow.

This chapter outlines existing theories of company law and corporate governance and related insights that are used to frame the analysis in this book, including those of Adam Smith, Berle and Means, Coase, Klausner, Alchian & Demsetz, Jensen & Meckling, Hart, Roe and Bainbridge.