Fiduciary Duties in a Stakeholder Model of Corporate Governance


Although remote communication technologies are among the hottest new trends in the pandemic age, the move to Zoom meetings is not the only identifiable transformation in corporate boardrooms. COVID-19 has given rise to profound corporate governance issues in overseeing the short-term and long-term health of a corporation.[1] This new environment presents boards with new and increasingly complex challenges, such as responding to the demands of various stakeholders and elevated social engagement expectations.[2]

Among the important issues affecting corporations is the transition from the traditional shareholder-centric model of corporate governance, which places shareholder interests at its center, to a model of governance that takes into account a broader range of stakeholder interests.[3] The former is born out of the agency relationship between shareholders and board members.[4] Accordingly, board deliberations should be guided by the principle that a corporation’s objective is to maximize returns for shareholders.[5]

As result of the recent socioeconomic pressures, however, there is now a growing view that corporations should be understood as “purpose-driven entities” guided by “sustainable profitability” and ethics of “social responsibility.”[6] Seen as a more comprehensive approach, the new model demands that the board consider factors that ensure long-term value and sustainability,[7] rather than short term profits. This model is characterized by taking into consideration not just returns to shareholders, but also a broad range of stakeholder interests.[8]

Whether or not the new model is widely adopted, directors always owe fiduciary duties to the shareholders.[9]  Most notably, they owe duty of loyalty and duty of care. Duty of loyalty is created to address conflicts of interest.[10] It requires a director to be loyal to the company and always act in its best interest.[11] Directors owe this duty in virtue of their status as agents of the shareholders.[12] Duty of care requires directors to act on an informed basis upon consideration of relevant information reasonably available to them.[13] If a director fulfills these fiduciary duties, she can benefit from the protections afforded by the business judgment rule—that is, she will be shielded from personal liability for decisions that she makes in her capacity as a member of the board.[14]

In the shareholder-centric model, in which shareholders’ interests take primacy,[15] it is easy to reconcile the role of board members as agents of shareholders with the duty of loyalty that they owe to the company. That is because the ultimate objective of a company is only to maximize returns for the shareholders.[16] But under the stakeholder-centric view, a director must be concerned with not just returns to shareholders, but also a range of other factors that impact other stakeholders,[17] such as consumers and employees. The stakeholder-centric model broadens the basis for the business judgment rule. Directors are not solely motivated by maximizing shareholder returns,[18] but are required to account for a range of stakeholder interests to ensure long-term and sustainable profitability.[19]

Directors can still meet their obligations both as agents of the shareholders and as members of the board in a stakeholder-centric model. Duty of loyalty requires directors to act for the benefit of the corporation and the stakeholders under both models.[20] The pandemic taught us that companies must actively monitor their relationship with core stakeholders.[21] But that does not “imply changes in the nature and scope of that accountability.”[22] Directors should consider other stakeholders such as consumers, creditors, employees and retirees; but they do so to determine the interest of the corporation.[23] Directors are subject to duty of care under both models.[24] There is no doubt that the scope of what directors need to do to fulfill their fiduciary roles has expanded since the pandemic.[25] For instance, directors are expected to implement employee health and safety protocols, to pay more attention to data security against cyber threats, and to ensure business continuity.[26] Despite the more sustainable approach of the stakeholder-centric model, directors still owe their fiduciary duties only to corporations and stockholders. The business judgment rule will continue to protect directors in a stakeholder-centric model if their decisions are made in good faith and in the interest of the company.[27]

Whether the pandemic was a turning point in the history of corporate governance remains to be seen. But it has certainly complicated decision-making for directors and challenged some of the fundamental presumptions about the shareholder-centric model of corporate governance.[28]





[1] See William Kucera, Jodi Simala & Andrew Noreuil, COVID-19 and Corporate Governance: Key Issues for Public Company Directors, Harv. L. Sch. F. on Corp. Govern’ce, (Apr. 29, 2020),

[2] See Lynn Paine, Covid-19 Is Rewriting the Rules of Corporate Governance, Harv. Bus. Rev., (Oct. 6, 2020),

[3] See Carlos Torneros, COVID-19 drives ESG debate over stakeholder capitalism, Institute of Chartered Acct. in Eng. and Wales, (July 30, 2020),

[4] See James Heskett, Should Management Be Primarily Responsible to Shareholders?, (Oct 26, 2020),

[5] See generally Joseph Bower & Lynn Paine, The Error at the Heart of Corporate Leadership, Harv. Bus. Rev., (last visited Oct. 23, 2020). [explanatory parenthetical encouraged R1.2(d)]

[6] David Katz & Laura Mcintosh, Corporate Governance Update: The Broadening Basis for Business Judgment, N.Y.L.J., (Sept. 23, 2020),

[7] See Paine, supra note 2.

[8] Caroline Banton, Shareholder vs. Stakeholder: What’s the Difference? Investopedia, (Feb. 25, 2020),

[9] Marcus Maple & Jade Sipes, Directors and Officers: Key Considerations for Continued Response to COVID-19, Baker Donelson (July 14, 2020),

[10] See Gilber Bradshaw, Duty of Care and Duty of Loyalty Owed by Directors in Delaware, Bradshaw Law (Group

[11] Will Kenton, Duty of Loyalty, Investopedia, (Jan. 9, 2019)

[12] Maple et al., supra note 8.

[13] See id.

[14] See id.

[15] Kucera et al., supra note 1.

[16] Id.

[17] Paine, supra note 2.

[18] See Katz et al., supra note 5.

[19] Id.

[20] See Maple et al., supra note 8.

[21] Paine, supra note 2.

[22] Id.

[23] Thierry Dorval, Petra Vrtkova & Charles-Etienne Borduas, Directors’ Fiduciary Duty in a Pandemic, Harv. L. Sch. F. on Corp. Govern’ce,  (June 18, 2020),

[24] Id.

[25] Paine, supra note 2.

[26] Maple et al., supra note 8.

[27] Id.

[28] Paine, supra note 2.


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Fordham Journal of Corporate & Financial Law