Contemporary crisis in the idea and practice of corporate governance prompts a consideration of future resolution based on historical imperatives. We review periods of analogous crisis in corporate governance in the mid1800s, 1930s, and 1960s to evaluate the catalyst, process, and outcome of paradigmatic change. Framing our analysis are the rulings made by the Court of Chancery of Delaware during those times of change. The Chancery Court's historical role as the legitimator of governance norms grounds our consideration of its recent opinions. Recent case law, we conclude, signifies the advent of a multifiduciary model of governance. Measurement of shareholders' reaction to dilution of their fiduciary status corroborates the state of crisis and underscores the normative code of the emergent multifiduciary governance model. We close by discussing the implications of the multifiduciary model for shareholders, executives, and society.
Political economy theory argues that managers tend to maximize shareholder profits "subject to the constraint that the corporation must meet all of its legal obligations to others" (Clark 1986:17-18). Recently, the question of whom exactly are "others" and what obligations they can legally claim has been debated. For any number of reasons, ranging from the significance of property rights in a market economy, evolving social attitudes about success, money, and accountability, or relaxation of legal standards, governance questions have evolved into both intellectual polemics and practical problems.
This article tries to make sense of this situation by examining prior "inflection points" in history when the dominant corporate governance paradigm was challenged and replaced. We begin by deconstructing the concept of corporate governance in terms of the fiduciary construct, profiling seven governance models. We then discuss the importance of these topics in terms of the contemporary crisis in corporation governance. We then sketch the history and authority of the Chancery Court of Delaware. These perspectives let us review the characteristics of transitions in governance paradigms in the mid-1800s, 1930s, and 1960s. The recurring dialectic of change grounds our projection of the probable resolution of the current governance crisis. Our discussion of the multifiduciary model closes with a consideration of its meanings to shareholders, managers, and society.
The Fiduciary Construct and Models of Corporate Governance
A survey of the management, finance, institutional, legal, sociology, and economics literatures identified seven distinct models of governance. We rely on the convergence of pragmatic and academic conceptualizations of governance to partition these models. Pragmatically, the American Law Institute's Principles of Corporate Governance Project (Dooley 1992) conceives of corporate governance in terms of two constructs, "responsibility" and "authority." The responsibility model posits a governance system in which all nonoperational decisions (i.e., merger or asset sale) that a board of directors makes must be ratified by shareholders. The authority model, conversely, vests directors with supreme authority and strictly limits shareholders' right to challenge their business judgment. In an academic context, Allen (1993:1401) expresses this dialectic in terms of the "philosophical realism of sociology," which champions collective responsibility, versus the "philosophical nominalism of economics," which advocates efficient authority. Congruence between these pragmatic and academic conceptualizations led us to argue for a continuum that invokes this dialectic in a way that begins to explain the relationships among the seven models.
We bound the continuum with the notions of "justice for all" and "liberty of the individual" (see Table 1). The positioning of each model follows its stipulation of the relative importance of "justice" versus "liberty" in terms of the fiduciary construct1-to whom do the directors of the business owe the duties of care, loyalty, and candor (Berle 1931; Dodd 1932; Justice Frankfurter in Exchange Comm'n v. …