In this article I offer an interpretation of Kentucky's corporate fiduciary law. The article is positive, in that it attempts to explain our law by reference to certain principles. The article is also normative, however, in that it offers constructive criticism regarding parts of Kentucky fiduciary law and suggests changes, refinements, and clarifications intended to promote fairness and economic efficiency in Kentucky corporations.
Both the positive and the normative aspects of this piece recognize the importance of the common law developments in Delaware (and other states) and the importance of the law and economics movement. I suggest, however, that Kentucky should be selective in the weight it accords to Delaware jurisprudence. Delaware cases are unfortunately too often confusing, contradictory, and needlessly complex, and thus they can slow or, indeed, actually misdirect an orderly development of the common law of corporate fiduciary duties.
Section II of this article discusses the most fundamental issue in corporate fiduciary law: the identity of the beneficiary of management's fiduciary obligation. Stating the issue more precisely, to whom or to which corporate constituency does the management of a Kentucky corporation owe its fiduciary duty?
Section III offers a broad construct for fiduciary duty obligations. It shows that courts—including Kentucky courts—vary the substantive standards by which they judge the propriety of managers' conduct. The applicable standard depends in the first instance on whether management is engaged in its monitoring function or is making a discrete decision. In discrete decisions, the standard changes depending on the existence and depth of any conflict in which managers may find themselves. This construct—separating duties in terms of monitoring versus discrete decisions, and in terms of the existence and depth of conflict—provides a sensible and manageable approach to fiduciary duty problems, even though the broad analysis .is infected to a degree by a few poorly reasoned and articulated court opinions.
Finally, Section IV discusses a number of specific issues and transactions that are important in Kentucky fiduciary law. I offer suggestions of the ways in which Kentucky courts can, in dealing with the issues or transactions, ensure outcomes that are fair and economically efficient.