Asaf Eckstein is Lecturer on corporate law and securities law at Ono Academic College; and Gideon Parchomovsky is Robert G. Fuller, Jr. Professor of Law at University of Pennsylvania Law School and Professor at Bar Ilan University Faculty of Law. This post is based on their recent article, forthcoming in the Cornell Law Review.
The duty of care and the duty of loyalty are the twin pillars on which corporate law is constituted. Together, they form the fiduciary duty that guides and binds every corporate officer and director. The duty of care requires directors and officers to exercise the level of care that a prudent person would use under similar circumstances. The duty of loyalty requires directors and officers to refrain from benefiting themselves at the expense of the corporation that they serve. Critically, though, both duties are one-dimensional. They only apply vertically in the relationship between the duty-bearers and the corporation. They do not avail horizontally in the relationship among corporate officers and directors inter se.
This article calls for the recognition of a horizontal duty of care and a duty of loyalty among directors and corporate officers inter se. The new duty we envision is supposed to complement, not replace, the duties directors and officers owe to the corporation.
