Fiduciary governance.

Author:Miller, Paul B.
Position:II. Governance-Type Fiduciary Relationships and Fiduciary Liability D. Governance-Type Relationships: Revisiting the Fiduciary Powers Theory through Conclusion, with footnotes, p. 548-586
  1. Governance-Type Relationships: Revisiting the Fiduciary Powers Theory

    The prevalence of fiduciary governance raises important questions about the nature of fiduciary relationships and the structure of fiduciary liability. The fact that governance mandates are established for the benefit of purposes rather than specific persons might suggest that fiduciary duties may arise independently of fiduciary relationships and thus that fiduciary liability is not inherently relational. Put simply, a fiduciary who undertakes a governance mandate would appear to be bound to respect its purposes but not to owe legal duties relating to the performance of his mandate to anyone in particular, simply because there is no one with a fixed beneficial interest in the mandate.

    In this Section we will argue that these impressions are mistaken. Governance mandates do have relational features, but governance-type fiduciary relationships can and should be differentiated from service-type relationships. The fiduciary powers theory provides a way of explaining governance-type relationships in a manner that captures their distinctive qualities while showing that they are of the same genus as service-type relationships. In brief, we argue that governance-type fiduciary relationships share essential formal properties with service-type relationships, save that they are established with different objects. As we will demonstrate, this point of distinction is not simply analytical; it has broader consequences for our understanding of the nature of fiduciary relationships and the circumstances in which they arise.

    The fiduciary powers theory suggests that fiduciary relationships are distinguished by the fiduciary's possession and exercise of other regarding discretionary powers. The theory contemplates service-type relationships. However, it can readily be broadened to encompass and explain governance-type relationships. To this end, we suggest the following extended definition of the fiduciary relationship:

    A fiduciary relationship is one in which one person (the fiduciary) enjoys discretionary power to pursue an abstract other-regarding purpose or the significant practical interests of another person (an individual beneficiary or ascertained set of beneficiaries). This revised definition reflects our above-noted view that all fiduciary mandates are purposive, although the purposes specified for some mandates are defined in terms of the interests of determinate persons while others are abstract in that they are defined such that they transcend the interests of determinate persons. The definition retains the general claim that all fiduciary relationships are distinguished by the nature of the powers wielded by fiduciaries. (110) To summarize: fiduciary powers are legal powers enjoyed on the footing of authority derived from the personal legal authority of legal persons. Fiduciary authority consists in the standing to make decisions for or on behalf of another person in the exercise of legal powers. Fiduciary powers, like personal legal powers, are wide-ranging: fiduciaries regularly act on behalf of others on the footing of contract (for example, in contract negotiation, formation, performance, and exercise of contractual rights); in dealings with respect to property, investments, and commercial matters (for example, in selling, licensing, and granting permissions in respect of tangible and intellectual property); and in making sensitive decisions with respect to matters of personal care (for example, making medical treatment or custodial care decisions).

    Fiduciaries who serve under governance mandates undertake and act on fiduciary powers so construed. The powers that they exercise are derived from benefactors. Consider the trustee of a charitable purpose trust. The trustee is authorized to act as a trustee, and is granted specific powers of trusteeship (including conventional powers to invest and maintain trust property, advance capital, and distribute income) by the declaration of trust made by the settlor. (111) Her position of authority and possession of fiduciary powers are essential to her ability to act in a legally effective way in advancing the purposes of the trust. And in assuming and acting on her mandate, the trustee stands in the stead of the settlor acting on authority derived from that of the settlor, through powers derived ultimately from the settlor's ownership powers in relation to the property settled on trust.

    Whereas trustees of charitable purpose trusts receive authority and power by delegation from private persons, directors of public purpose corporations receive their mandate from the state. There are undoubtedly significant differences between the legal personality of the state and that of natural persons, some of which may be relevant to the authority of the state to delegate power on a fiduciary basis. We cannot, and need not, delve into these issues here. For present purposes, it suffices to recognize that the state can and does routinely delegate authority through the creation of public offices, agencies, and institutions mandated to pursue public purposes. (112) Directors and officers of public purpose corporations receive their mandate through legislative or executive acts whereby the state establishes (a) the corporation; (b) its purposes; (c) the offices through which the corporation will be administered; (d) the powers attached to the corporation and its offices; and (e) other details in respect of corporate governance, reporting, and accountability. (113)

    Just as fiduciary service mandates and relationships serve to facilitate extension of the personality of persons through delegation of powers to promote the ends of particular persons, governance mandates enable extension of the personality of persons through delegation of powers to promote particular abstract purposes. Both kinds of fiduciary relationship permit those who establish them to avail themselves of the resources and capacities of others in advancing the cause of specified purposes or persons. Thus, fiduciary relationships: make it possible for individuals to make more productive and valuable use of their personal powers than would otherwise be possible; (114) advance private ordering by facilitating self-directed coordination and association of persons for common purposes; and permit the state to more efficiently and effectively accomplish its responsibility to govern in the public interest. (115)

    Having established that governance-type fiduciary relationships, like service-type relationships, are distinguished by the fiduciary's possession and exercise of delegated power, we may now consider ancillary issues, including relationship formation and the relational character and objects of fiduciary authority.

    As noted above, service-type fiduciary relationships are often formed by a beneficiary and fiduciary for the beneficiary's own benefit. Governance-type relationships, by contrast, are instead premised on a benefaction--an act whereby one person aims to confer benefits through stipulated abstract purposes. Fiduciary powers are often derived from the person of the benefactor acting in her own stead. However, they may also arise from further (second order) delegation by a fiduciary. (116) The precise manner in which a benefactor will establish a governance mandate will vary depending on whether she is a natural or legal person, on whether she is acting in a personal or fiduciary capacity, and on the nature of the powers she wishes to confer.

    Take the relatively simple case of the charitable purpose trust. Here, the mandate conferred upon the trustee is a product of mutual consent reflected in the trustee undertaking trusteeship on terms set forth in the declaration of trust made by the settlor. (117) By contrast, public fiduciary governance mandates are often established through the exercise of sui generis powers of the state. (118) For example, an official with requisite authority in the executive branch may create an office and appoint an official by executive order, in which case the governance mandate undertaken by the appointee is the product of the order itself.

    Whatever the nature of a governance mandate, and however it may be conferred, it should be evident that the powers enjoyed by the fiduciary are derivative of powers enjoyed by the benefactor and are granted and held in a relational context defined by purposes specified by the benefactor. The key to appreciating the differences in the constitution of governance-type and service-type relationships lies in recognizing that the former are institutional rather than interpersonal. There is no privity binding the fiduciary to another determinate person. Instead, the fiduciary relates to, and more specifically reports to, persons who occupy monitoring and enforcement roles relative to the fiduciary in respect of the mandate. In some cases, this role may be occupied by the benefactor, as when the government relies on the Government Accountability Office (GAO) to supervise public purpose corporations. In other cases, the role may be occupied by co-fiduciaries, as occurs within a fiduciary collective like a board or in hierarchical fiduciary structures. In yet other circumstances, monitoring and enforcement rights may be extended to representatives of constituencies committed to the purposes of a fiduciary institution, such as donors, volunteers, or other members of a charitable organization.

    Governance-type fiduciary mandates diverge from service-type mandates primarily in respect of their objects. In a governance-type relationship, the fiduciary is empowered to advance certain purposes of a benefactor stipulated independently of the interests of particular persons who may stand to benefit from pursuit of same. The objects of governance-type mandates are often statements of common purpose that define the general nature and specific institutional mission of private...

To continue reading