Do Corporate Fiduciary Duties Matter?

Abstract

The duty of corporate fiduciaries to act in the best interests of the firm lies at the heart of most stories about corporate law. It has occupied the centre of what is probably the longest and most extensive debate in corporate law: whether the duties should be owed to shareholders alone or to other constituencies impacted by corporate decisions. Alterations to the character of fiduciary duties are regularly proposed by reformers as a way to reduce various harms, from plant closures to pollution. The character of the duty has been blamed for failures by the corporate form to advance public goods, leading to reforms like the "benefit corporation." Finally, the fiduciary duty has generally been understood to be an important element in the modern project of controlling agency costs. This paper is not about the shareholder primacy/stakeholder debate; it is about whether this long-standing debate actually matters. It takes up the question whether any visible realworld results follow an alteration of the character of fiduciary duties. Most importantly, it examines whether controlling the self-interested behaviour of agents is really the central question of corporate law. We examine the available empirical evidence on the impact of changes to the fiduciary duty. We begin with the more than thirty-year experience of the United States with constituency statutes and the more recent evidence from the adoption of corporate opportunity waivers. To this preexisting literature we contribute an analysis of the effect of the Supreme Court of Canada's 2008 decision, BCE Inc. v. 1976 Debentureholders, which abruptly changed the nature of the fiduciary duty for Canadian companies. In harmony with the earlier research, we find the move from shareholder primacy to a stakeholder regime does not appear to produce visible impacts on litigation patterns, takeover premiums, equity asset values, and equity risk premiums. In other words, a fundamental change in the character of the duty had no visible impact on the things corporate law predicts will be impacted. The results appear to be explained by the legal, social and economic context in which fiduciary duties arise, and the paper concludes by discussing the implications of the empirical evidence for corporate law theories and scholarship.