Title
Corporate Officer Wrongdoing and the Fiduciary Duties of Corporate Officers under Delaware Law
American Business Law Journal (forthcoming 2007)
Abstract
In the wake of well-publicized corporate scandals in which executive officers were viewed as the main antagonists, the institutional and legal status of corporate officers (non-director officers or director-officers acting in their capacity as officers) has been gaining increased attention. However, surprisingly, the legal standards by which officer misconduct is judged under state corporate law remain vague. Recent scholarship has sought to fill that void by, among other things, re-emphasizing the fact that officers’ fiduciary duties, unlike those of directors, arise out of agency law. This paper will build on those efforts by, first, examining one interesting question that arises naturally from that fact: to what extent can officers negotiate with the corporation for changes to the legal standards that govern their conduct? That is, to what extent are officer fiduciary duties, unlike those of directors, an enabling rather than a mandatory concept? The paper considers both normative as well as positive law aspects of that question under Delaware law and concludes that some limits should, and do, curb the standard agency law rule of freedom of contract in this context. Second, this paper will consider the application of the legal rules governing officer misconduct to one particularly vexing trend: the unjust enrichment of officers who have breached their fiduciary duties or committed other acts of misfeasance in the course of their duties. Such officers can nevertheless receive millions of dollars in compensation under their employment or severance agreements even as they are dismissed by the corporation for their misdeeds. This paper will discuss various legal tools that might allow, or even require, the board to void or recover such payments.
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