Motivation, Information, Negotiation: Why Fiduciary Accountability Cannot Be Negotiable

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2017-04-07

Posted by Amir Licht, Interdisciplinary Center Herzliya, on Thursday, April 6, 2017
Editor's Note: Amir Licht is Professor of Law at the Interdisciplinary Center Herzliya, Israel. This post is based on his recent paper, forthcoming in the Research Handbook on Fiduciary Law (Andrew Gold & D. Gordon Smith, eds.) This post is part of the Delaware law series; links to other posts in the series are available here.

While common law jurisdictions around the world exhibit substantial similarity in many basic features of fiduciary loyalty, fiduciary law is particularly diverse with regard to whether and to what extent should parties be allowed to define their relations contractually. This paper advances a theory of the extent and the limits of contractual freedom with regard to fiduciary obligations, or, put otherwise, of the irreducible core of such obligations. The key insight on which this theory hinges holds that fiduciary obligations constitute a social-institutional response to acute information asymmetries, especially of the unobservable and unverifiable kind.

It is trite law that a fiduciary and a beneficiary can agree on the former’s duties and liability. Now if the beneficiary can validly agree to a single breach she can surely agree to a handful, and if so, why not to every breach? The freedom of parties to fiduciary relations to negotiate the scope of the fiduciary’s legal responsibility thus has been hotly debated in different sub-fields of fiduciary law and in several common law jurisdictions.