The Efficient Norm for Corporate Law: A Neotraditional Interpretation of Fiduciary Duty

To economically oriented corporate law professors, distinguishing between directors’ fiduciary duty to shareholders and a duty to the corporation1 itself smacks of reification – treating the fictional corporate entity as if it were a real thing. Now the orthodox view among corporate law scholars is that the corporate fiduciary duty is a norm that requires firm managers to “maximize shareholder value.” Giving the corporation itself any serious role in the analysis of fiduciary duty, the thinking goes, obscures scientific insight with bad legal metaphysics. Some recent scholarship and legislation, such as constituency statutes, have challenged this “shareholder primacy” view. Contestants on both sides of the debate over corporate fiduciary duty assume, however, that economic analysis inevitably favors shareholder primacy. Critics of shareholder value maximization encourage this assumption by making their case turn, in part, on criticisms of economic methodology itself and on invocations of moral and political values most economists would find controversial at best. Nevertheless, the economic approach to corporate law does not foreordain the maximization of shareholder value as the primary norm of corporate law. The economic case for shareholder value maximization is, in fact, initially puzzling and ultimately unconvincing. If economic efficiency is the normative guidepost for substantive law, the principal norm of corporate law cannot be the maximization of shareholder value.