Business and corporate crime is a controversial social problem. Less well known is the extent to which corporate legal doctrine permits derivative litigation against corporate officials arising from deviance episodes. In this Article, Professor Ryan examines both the traditional applications of fiduciary obligation to corporate deviance and the American Law Institute's revised formulations in the still-unfinished Principles of Corporate Governance. His findings reveal the difficulties encountered in trying to enforce general legal obligations by means of corporate governance mechanisms. He predicts that the ex ante effects of the ALI provisions will be two in nature. First, fiduciary obligation and its enforcement by derivative litigation could have a deterrent effect on corporate deviance, but only if judges commit themselves to the Principles' notion that fiduciary responsibility for corporate law violations is the most significant component of the duty of care. This commitment would be measured by judges' reluctance to grant easy and routine dismissals in corporate deviance cases, even when dismissal is recommended by a special litigation committee. Second, the Principles' general law compliance obligation can have a hortatory effect on managers in particular situations. The Principles' general law compliance obligation thus works to reinforce managers' preexisting socialization toward law compliance.
Patrick J. Ryan,
Strange Bedfellows: Corporate Fiduciaries and the General Law Compliance Obligation in Section 2.01(a) of the American Law Institute's Principles of Corporate Governance,
66 Wash. L. Rev.
Available at: https://digitalcommons.law.uw.edu/wlr/vol66/iss2/3