Even Bank Directors Are Not “Platonic Masters”: The fiduciary duties of bank boards extend to efforts to exploit banking regulations and manipulate bank regulators

When a board of directors takes action for the primary purpose of thwarting the effectiveness of shareholders’ election of directors, that board violates its duty of loyalty. The rationale for this rule is simple: as between shareholders and directors, shareholders are the principals and directors the agents. In a principal/agent relationship, the principal has the authority to choose the agent and in the context of directors and shareholders, it is fundamentally disloyal for the director/agent to usurp the principal/shareholders’ authority to elect directors. [1] Among non-banking, commercial corporations, this is a matter of settled law and boards are largely loathe (whether to avoid liability or predictable repercussions) to take any corporate action that would thwart the effectiveness of a shareholder vote, such as attempting to prevent a contested election of directors. Yet boards of banking organizations—almost as a matter of course when confronted with an activist investor—will shamelessly take actions with the obvious “purpose of obstructing the legitimate efforts of dissident stockholders in the exercise of their rights to undertake a proxy contest against management.” [2]

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