Fiduciary governance.

• Author: Miller, Paul B.
• Position: Abstract through II. Governance-Type Fiduciary Relationships and Fiduciary Liability C. The Usual Structure of Fiduciary Liability, p. 513-548

ABSTRACT

The fiduciary relationship is one of the most fundamental legal relationships, and its importance for both public and private law is increasingly recognized. Fiduciary mandates typically involve one person--the fiduciary--administering the affairs or property of other persons--an individual beneficiary or group of beneficiaries. Yet, as we will demonstrate, this is not the only way fiduciary relationships are structured. Most accounts of fiduciary law oversimplify the law because they exclude a categorically different form of fiduciary relationship. A significant set of fiduciary relationships feature governance mandates in which the fiduciary is charged with pursuing abstract purposes rather than the interests of persons. Indeed, many public and private fiduciary institutions are best understood as being administered on the basis of governance mandates, rendering moot longstanding debates over specification of beneficiaries and requirements of loyalty. The resulting account provides important new insights for core issues in corporate law, administrative law, and constitutional law, among other fields.

TABLE OF CONTENTS INTRODUCTION I. THE NATURE OF FIDUCIARY GOVERNANCE A. Fiduciary Service Mandates B. The Nature of Fiduciary Governance C. Fiduciary Governance in Practice 1. Charitable Purpose Trusts 2. Public Purpose Corporations 3. Conventional Business Corporations II. GOVERNANCE-TYPE FIDUCIARY RELATIONSHIPS AND FIDUCIARY LIABILITY A. The Fiduciary Powers Theory of the Fiduciary Relationship B. Conventional Fiduciary Relationships C. The Usual Structure of Fiduciary Liability D. Governance-Type Relationships: Revisiting the Fiduciary Powers Theory E. Accountability in Fiduciary Governance: Rethinking Fiduciary Liability III. FIDUCIARY LOYALTY TO PURPOSES A. Conceptions of Loyalty to Persons B. Conceptualizing Loyalty to Abstract Purposes IV. THE IDEA OF FIDUCIARY GOVERNANCE: INTERPRETIVE IMPLICATIONS A. Public Fiduciary Law 1. The Judicial Branch 2. The Executive Branch 3. The Legislative Branch 4. The State B. Private Fiduciary Law 1. Public Benefit Corporations 2. Corporate Purpose Clauses and Agency Slack C. Summary CONCLUSION INTRODUCTION

Fiduciary theory is undergoing a renaissance. In recent years, public law scholars have offered fiduciary accounts of the state and its officials. Core features of corporate law have been explained in fiduciary terms. Several important legal relationships--the parent-child relationship, the lawyer-client relationship, and the doctor-patient relationship--have been elaborated from a fiduciary perspective. Yet, the nature of these fiduciary relationships is not well understood. This Article offers a new perspective on an important subset of fiduciary relationships.

Fiduciary mandates typically involve one person administering the affairs or property of another. Fiduciary mandates of this sort implicate a conventional fiduciary relationship to which the fiduciary and beneficiary are parties. In turn, the fiduciary's role is characterized by his or her possession of legal powers held relative to practical interests of the beneficiary. (1) Thus, for example, an agent is authorized to exercise certain powers to bind her principal in contract, and is understood as exercising her powers to advance the interests of the principal (for example, interests in a business venture). Similarly, a lawyer is authorized to represent her client and, in exercising particular powers of representation, acts to protect or pursue the interests of her client (for example, interests in a child custody matter or criminal prosecution). In these contexts, fiduciary mandates exist for the benefit of determinate persons. Given that fiduciary mandates of this sort involve fiduciaries serving the interests of persons, we shall refer to them as fiduciary service mandates.

Most accounts of fiduciary law assume that all fiduciary relationships are strictly interpersonal. For example, Tamar Frankel has argued that fiduciary relationships are a primary form of social relationship marked by interpersonal dependency: "[0]ne party to a fiduciary relation (the entrustor) is dependent on the other (the fiduciary).... [T]he entrustor becomes dependent because he must rely on the fiduciary for a particular service." (2) Gordon Smith has said that fiduciary relationships involve the fiduciary acting on behalf of a beneficiary in respect of a critical resource belonging to the beneficiary. (3) And Deborah DeMott has suggested that fiduciary duties be understood interpersonally in terms of an overarching obligation "to act to further the beneficiary's best interests." (4) Indeed, one of us has argued that fiduciary liability is premised upon the existence of a fiduciary relationship defined in interpersonal terms. (5) Moreover, these analyses are supported by sweeping judicial statements. (6)

These accounts are not unreasonable. The difficulty is that they oversimplify the law. A significant subset of fiduciary mandates involves governance rather than service. Fiduciary governance mandates arise in contexts in which the fiduciary is engaged to determine or advance certain abstract purposes. Whereas service mandates involve administration of the affairs or property of persons, governance mandates involve administration for particular purposes. The powers of the fiduciary, and the objects for which he acts, are specifiable entirely with reference to one or more abstract purposes without it being necessary to identify a beneficiary, much less the particular interests or preferences of that beneficiary.

Fiduciary governance has striking implications for broad swaths of law, from corporate and charities law to administrative and constitutional law. Fiduciary theory has recently shed new light on these fields. Yet difficult and unresolved questions remain under the conventional view. For example, a longstanding debate exists in corporate law on the question of which groups are properly identified as the beneficiaries of the fiduciary administration of corporations by directors. Administrative law, for its part, raises difficult questions concerning the proper beneficiaries of agency discretion. And legal and political theorists who have advanced fiduciary theories of government have struggled with the problem of identifying beneficiaries of public offices and undertakings. To a considerable extent, these problems can be traced to assumptions implicit in conventional accounts of fiduciary law. Recasting the mandates in these settings in terms of fiduciary governance offers a fresh perspective on these debates.

In this Article, we explain the idea of fiduciary governance and distinguish it from fiduciary service. Our analysis unfolds as follows. In Part I, we examine the differences between fiduciary service and fiduciary governance mandates and discuss three exemplars of fiduciary governance: the administration of charitable purpose trusts; the administration of state-owned public purpose corporations; and the administration of conventional corporations. (7) In Part II, we explain the sense in which fiduciary governance mandates are situated within a distinctive kind of fiduciary relationship, and we explore the ramifications of fiduciary governance for our understanding of the structure of fiduciary liability. In Part III, we discuss fiduciary governance in the context of the hallmark fiduciary obligation of loyalty, contrasting the familiar ways in which fiduciaries exhibit loyalty to persons with the notion of loyalty to purposes that constrains execution of fiduciary governance mandates. In Part IV, we highlight some of the more important implications of our account of fiduciary governance.

The most significant implication of our discussion is that several key private and public institutions ordinarily theorized in terms of fiduciary service would be better understood as implicating fiduciary governance. For example, the state and its public offices and officials arguably have fiduciary governance mandates and, as such, a distinctive set of fiduciary responsibilities. Likewise, in corporate law settings, corporate directors may have fiduciary governance mandates. This view of the mandates of directors allows us to better understand what is at stake in cases like Burwell v. Hobby Lobby Stores, Inc., in which corporate management sees its role in terms of given--and sometimes quite distinctive--corporate purposes. (8) In these and other settings, the idea of fiduciary governance suggests a fundamental rethinking of the nature of fiduciary mandates.

1. THE NATURE OF FIDUCIARY GOVERNANCE

   Conventional fiduciary relationships are formed between fiduciaries and beneficiaries, and found an interpersonal form of accountability, realized through assignment of correlative rights and duties between the parties. We have suggested, however, that fiduciary law also admits of governance-type fiduciary mandates that are regulated by institutional accountability mechanisms. In what follows, we explain fiduciary governance and offer three illustrations to establish correspondence between our theory and actual practices of fiduciary administration. In order to establish the distinctiveness of fiduciary governance, we begin by offering a brief account of fiduciary service.

   1. Fiduciary Service Mandates

      Most fiduciaries are engaged in the provision of fiduciary services for or on behalf of a beneficiary or group of beneficiaries. (9) The services provided are varied but necessarily refer to a beneficiary in that they directly engage one or more of their specific practical interests. (10) As we will explain in Part II, fiduciaries always occupy a position of authority under which they exercise one or more legal powers granted on a fiduciary basis. Under fiduciary service mandates, the beneficiary (11)--or a benefactor who wishes to make a mediated benefaction to the beneficiary--authorizes the fiduciary to act. (12) In...