Fiduciary duty did not begin as a doctrine about abstraction. It began as a response to vulnerability.
In its equitable origins, fiduciary obligation emerged in the English Court of Chancery to restrain those who exercised discretionary power over the property or interests of another. Trustees, agents, guardians, and partners were bound not because they managed entities, but because they controlled assets belonging to identifiable human beneficiaries who could not adequately protect themselves.
Equity intervened when power and vulnerability diverged.
Justice Cardozo captured that tradition in Meinhard v. Salmon, 249 N.Y. 458 (1928), describing fiduciaries as bound by “the punctilio of an honor the most sensitive.” The language was not ornamental. It reflected equity’s suspicion of discretionary authority and its insistence that those who wield it do so meticulously for others.
Modern corporate fiduciary doctrine retains the vocabulary of loyalty and care — but much of its original relational force has thinned. Fiduciary law migrated from chancery’s protection of vulnerable persons to corporate governance’s protection of non‑human organizations such as corporations, partnerships, and associations. The ultimate beneficiary became abstract, separated from the juridical entity.
The duty survived. The human faded.
From Entrusted Property to Corporate Personhood
Nineteenth-century corporate opinions routinely described directors as trustees of shareholder capital. The animating premise was straightforward: investors contributed capital but ceded control. Fiduciary duties prevented opportunism.
Over time, courts emphasized instead that directors owe duties “to the corporation and its stockholders.” See Aronson v. Lewis, 473 A.2d 805 (Del. 1984). In practice, the derivative procedure makes clear that the corporation is the primary right-holder.
This conceptual shift matters.
The corporation is a legal person. It does not experience vulnerability, retire, rely on dividend income, or depend on portfolio performance for medical security.
Humans do.
When fiduciary duty becomes framed primarily as loyalty to the corporate entity, enforcement transforms from protecting vulnerable beneficiaries to preserving managerial authority within organizational structures.
Institutional Reinforcement of Fiduciary Drift
The drift from relational constraint to managerial insulation has not occurred by accident. It has been reinforced doctrinally and institutionally.
The Business Judgment Rule
The business judgment rule (BJR) presumes directors act on an informed basis, in good faith, and in the best interests of the corporation. See Shlensky v. Wrigley, 237 N.E.2d 776 (Ill. App. Ct. 1968); Aronson, supra.
Originally designed to prevent hindsight bias, the BJR has evolved into a powerful shield. Unless plaintiffs plead particularized facts showing bad faith, disloyalty, or gross negligence, courts defer.
The result: care claims rarely survive dismissal.
Exculpation and §102(b)(7)
After Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), Delaware enacted 8 Del. C. §102(b)(7), permitting corporations to eliminate monetary liability for breaches of the duty of care. Nearly all public Delaware corporations adopted such provisions.
In 2022, Delaware extended exculpation to certain officers. Care remains a doctrinal duty — but often without meaningful exposure to damages.
Demand Futility and Procedural Barriers
Because fiduciary duties run primarily to the corporation rather than to the beneficiaries, shareholders must proceed derivatively. That requires either making a demand on the board or pleading demand futility under Aronson or the refined standard in United Food & Commercial Workers v. Zuckerberg, 262 A.3d 1034 (Del. 2021).
Special litigation committees may seek dismissal under Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981). Commentary on derivative litigation routinely notes that strict procedural requirements are “the most common” grounds for dismissal, especially failure to meet the demand‑futility standard or to plead with particularity. Academic work on derivative suits emphasizes that relatively few cases lead to plaintiff recoveries and that many are resolved through dismissals or committee‑recommended terminations, which are largely procedural/business‑judgment determinations rather than adjudications of substantive fiduciary breach.
Procedure, not substance, frequently determines outcome.
Indemnification and D&O Insurance
8 Del. C. §145 authorizes indemnification and advancement of expenses. Combined with widespread D&O insurance, personal financial exposure is rare outside fraud or self-dealing.
The cumulative architecture — BJR deference, §102(b)(7), demand futility, indemnification — does not abolish fiduciary duty. However, it certainly narrows its practical bite.
Shareholder Primacy and Its Misuse
The “maximize shareholder value” mantra is often traced to Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919), although modern doctrine is more nuanced.
The narrow sale-of-control context, Revlon, Inc. v. MacAndrews & Forbes, 506 A.2d 173 (Del. 1986), requires directors to seek the highest value reasonably available.
Outside Revlon, boards retain broad discretion.
Yet rhetoric shapes expectations. When fiduciary duty is equated with firm-specific share price maximization, the systemic externalities borne by diversified investors are excluded from doctrinal consideration.
Universal owners internalize externalities across portfolios. A doctrine focused solely on firm-level extraction misaligns with long-term human investor welfare. Today, with our collective or individual pension accounts, we are almost all prudent universal owners using some framework derived from Harry Markowitz’s modern portfolio theory. See Moving Beyond Modern Portfolio Theory: Reflections.
Steinberg: Directors as “Discretionaries,” Not Fiduciaries
Marc Steinberg’s Corporate Director and Officer Liability: “Discretionaries” Not Fiduciaries sharpens the critique. (buy the book)
Despite longstanding rhetoric, corporate directors and officers are not true “fiduciaries” in the sense of being strictly required to act with robust duties of loyalty and care for identifiable human beneficiaries. Instead, Steinberg contends they should be called “discretionaries,” because Delaware law, the Model Business Corporation Act, and various state statutes impose only limited, highly deferential liability standards in most settings.
For core duty of care claims, plaintiffs must prove gross negligence, deliberate disregard, or reckless indifference. The business judgment rule is so protective that it can be harder to rebut than it is for prosecutors to win criminal negligence convictions. Further, exculpation statutes often require proof of intentional misconduct to recover damages and can even shield some loyalty breaches, while mechanisms such as special litigation committees or informed board approval can insulate self‑dealing or the diversion of corporate opportunities from meaningful judicial review.
While genuine fiduciary standards do appear in narrow contexts (such as entire fairness review of certain conflicted or going‑private transactions), these are exceptions that highlight the gap between “fiduciary” rhetoric and day‑to‑day liability rules. The persistence of the fiduciary label misleads investors and the public into overestimating the legal constraints on directors and officers. Misapplying the term fiduciary undermines legal transparency, investor expectations, and trust in financial markets. Abandoning the “fiduciary” label in favor of the more accurate, neutral term “discretionaries” would better reflect actual doctrine and strengthen the rule of law.
The rhetoric of loyalty persists.
The enforcement reality is constrained.
If fiduciary law originally existed to constrain discretionary power exercised over another’s property, then the gap between language and liability deserves attention.
McRitchie v. Zuckerberg and the Incidental Human
Vice Chancellor Laster observed in McRitchie v. Zuckerberg (Del. Ch. 2024):
The fact that shares are freely alienable by default means that, from the directors’ standpoint, the ultimate human beneficiaries of that value are incidental.
The observation is descriptive — and revealing.
When fiduciary duty is conceptualized as loyalty to freely alienable shares rather than to identifiable beneficiaries, humans recede from view.
Re-Humanizing Fiduciary Power: Jill Fisch and Informed Intermediation
Steinberg exposes how “fiduciary” overstates the constraints on directors. Jill Fisch exposes how the same term understates the obligations of institutional intermediaries.
In Corporate Democracy and the Intermediary Voting Dilemma Fisch and Jeff Schwartz argue that modern stewardship, particularly ESG engagement, implicates contested values. When fund managers vote on climate disclosure, workforce diversity, or political spending, they are not merely optimizing firm value. They are making normative judgments.
Fiduciary law does not permit such judgments to float free of beneficiary interests.
Under both trust principles and ERISA’s “solely in the interest” mandate (29 U.S.C. §1104(a)(1)), fund managers must act in beneficiaries’ best interests.
Fisch’s central claim: fiduciary duty requires fund managers to make reasonable efforts to identify and evaluate beneficiary preferences before exercising voting authority on their behalf.
She rejects rigid pass-through voting. In Standing Voting Instructions: Empowering the Excluded Retail Investor, Fisch shows that retail voting participation is structurally suppressed by regulatory and technological design, not by inherent apathy.
Instead, she proposes “informed intermediation.”
Elements of Informed Intermediation:
- Fund managers must seek beneficiary input.
- They must incorporate that input into stewardship.
- They must disclose how they do so.
- Regulators—not private plaintiffs—should oversee compliance.
Intermediaries retain discretion, but discretion becomes relational. This restores a core fiduciary principle: delegated authority arises from trust placed in those intermediaries by informed beneficial owners — people.
Voting Choice as a Partial Correction
Recent voting-choice initiatives at BlackRock, Vanguard, and State Street respond to both market forces (client demand, differentiation) and intense political/regulatory scrutiny of their proxy voting power. The political angle plays at least a major catalytic role.
Each firm frames these programs as empowering clients, responding to asset‑owner demand to express their own preferences on issues like climate, DEI, and executive pay. At the same time, commentators and academic work describe the rise of “pass‑through” or voting choice as driven by public and political concern that the Big Three wield too much centralized voting power and are shaping policy on contested ESG questions.
Voting choices and policy option menus (including explicitly “wealth-focused”/non-ESG policies via Egan‑Jones) allow the firms to deflect accusations of one‑sided “ESG activism” or political bias by saying they are simply executing client choices, which can reduce pressure from both anti‑ESG and pro‑ESG critics.
These programs allow institutional clients—and, increasingly, retail investors—to select from among stewardship frameworks. SEC guidance confirms that advisers retain fiduciary duties when exercising proxy authority. See SEC Release No. IA-5248 (2019).
Voting choice documents beneficiary preference. It does not eliminate intermediary responsibility. That documentation matters. When asset managers engage issuers, they can increasingly ground stewardship positions in expressed client mandates rather than internal ideology. In doing so, they reintroduce a relational element that has long been absent from corporate fiduciary doctrine.
The Throughline: From Chancery to Abstraction — and Back
Fiduciary law originated to protect vulnerable humans from opportunistic power. Corporate doctrine reframed duty as loyalty to a juridical entity.
Institutional architecture reinforced managerial insulation. Steinberg reveals the erosion of constraint in the director context. Fisch reveals the unfulfilled relational obligations in the intermediary context. Together, they expose fiduciary drift in two directions:
- Overstated constraint (directors).
- Under-enforced relational inquiry (intermediaries).
If fiduciary duty is to retain legitimacy as a legal concept in the corporate governance context, it must reconnect authority to the humans whose capital and vulnerability justify its existence.
The premise should be explicit: Fiduciary duty exists to protect people, not abstractions.
When doctrine renders people incidental, reform is not ideological. It is restorative. If individuals care enough to demand reforms, fiduciary duty could, once again, protect vulnerable people who entrust power to others in the context of corporate governance.
Addendum: Dutch Fund Centers Humans
Recent empirical work on “investor democracy” demonstrates that beneficiaries possess structured, morally coherent preferences regarding the deployment of their capital once provided with balanced information and deliberative space. In field experiments with a large Dutch pension fund, randomly selected participants engaged in expert-informed deliberation and subsequently supported expanding impact investments even when explicitly informed of potential return trade-offs.
The study exposes a core tension in modern fiduciary governance: decision-makers routinely assume beneficiary preferences rather than eliciting them. If fiduciary duty exists to manage discretionary power exercised over another’s property, then mechanisms that surface and incorporate beneficiary preferences are not democratic embellishments — they are contemporary expressions of fiduciary loyalty.
Reconnecting fiduciary duty to people does not require abandoning expertise. It requires structured mechanisms that make discretionary authority answerable to those whose capital it governs. (Investor Democracy)
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