The Argument of Fiduciary Duty in Modern Business World

The Argument of Fiduciary Duty in Modern Business World

Introduction

The concept of fiduciary duty has a long history. The history can be traced back to eight centuries under English common law. The etymology of the word “fiduciary” is the Latin word Fiducia meaning “faith”. Different scholars interpret the concept in different ways. For example, Judge Cardozo in Meinhard v. Salmon (1928) described the fiduciary as ― is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior (p. 546).

So, a fiduciary is somebody in whom we have faith on him and somebody in whom we can trust. The fiduciary is expected to perform duties at all time for the interests and benefit of the principal, with enough loyalty to those interests. For example, a financial advisor, by the notion of the word, is somebody who gives you advices in financial aspects and in your benefit. He can never put his own interest before his duty as a financial advisor and, more importantly, has interests which are conflicts with the principal.

Although the fiduciary duty has a very long history and various applications in the real world, from the past to the present, there are still some arguments about the coverage and the regulation of the fiduciary duty.

Argument about the coverage

Through the development of the concept and a series of court cases, the basic requirement has not been changed, but the interpretation of the doctrine has been expanded which is beyond the traditional context.

Under the traditional views, the concept only applied to shareholders who said they were at greater risk than other claimants such as creditors and employees. Fiduciary duty was then limited to the relationship between shareholders and corporate managers.

However, if the concept only applied to the shareholders, it made no sense because some other related parties,...