Loyalty on the decline?

President Trump’s firing of then FBI director Jim Comey for refusing to pledge personal loyalty to him has given loyalty a bad name.  But on the whole loyalty plays an essential role in our business ethics/law framework.

In The Diminishing Duty of Loyalty Professor Julian Velasco of Notre Dame Law School notes:  Fiduciary duties comprise an integral part of corporate law. It is generally understood that directors owe the corporation and its shareholders two fiduciary duties: the duty of care and the duty of loyalty. Although both duties are firmly established in corporate law, they are not treated equally. It is generally understood that the duty of loyalty is enforced far more rigorously than the duty of care. …In this Article, I demonstrate that the duty of loyalty is not enforced as rigorously as is commonly believed.

Given the importance of the duty of loyalty to business ethics, this is unhappy news. But Velasco also sees some basis for a broader view of the duty of loyalty than is currently prevalent – resting, in part, on the broader view of what can cause disloyalty that was articulated by the Delaware Chancery Court in 2003:

Delaware law should not be based on a reductionist view of human nature that simplifies human motivations on the lines of the least sophisticated notions of the law and economics movement. Homo sapiens is not merely homo economicus. We may be thankful that an array of other motivations exist that influence human behavior; not all are any better than greed or avarice, think of envy, to name just one. But also think of motives like love, friendship, and collegiality, think of those among us who direct their behavior as best they can on a guiding creed or set of moral values.

Velasco notes: When writing or citing passages such as these, courts are implicitly acknowledging the need for a more comprehensive inquiry into loyalty than current law allows. I share his hope that the law will move more in this direction. And I hope also that in the realm of compliance & ethics programs – where decisions are often made regarding what types of loyalty are cognizable for conflicts of interest purposes – the broad view articulated above and in several other cases cited in his article will be embraced.

Finally, the need to strengthen the duty of loyalty does not diminish the need for a strong duty of care. As Samuel Johnson once said: “It is more from carelessness about truth than from intentionally lying that there is so much falsehood in the world.”

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