Turning servile opportunities to gold: A strategic analysis of the corporate opportunities doctrine

The corporate opportunities doctrine ("COD") regulates when and whether a c orporate officer or director may appropriate new business prospects for her own account without first offering them to the firm. The doctrine-a subspe cies of the fiduciary duty of loyalty-has been a mainstay of corporations l aw in most states for well over a century. At the same time, however, the C OD has always been murky in application and is currently in a state of cons iderable disarray. In this Article, Professor Eric Talley attempts to chart a course out of this doctrinal quagmire by offering a contractarian accoun t of the COD as a default mechanism for allocating intrafirm property right s between shareholders and fiduciaries. To animate his analysis, Professor Talley develops a game-theoretic model o f fiduciaries' incentives under various legal regimes. He then demonstrates that both the reach and the consequences of an "optimal" legal rule depend crucially on the information structure that governs the underlying agency relationship. When relevant information about new projects is available to both shareholders and fiduciaries, the optimal rule allocates each project to whomever is the lowest-cost producer. On the other hand, when corporate fiduciaries possess private, unverifiable knowledge about new projects, the optimal COD has a strict-liability flavor, imposing damages that need not correspond to either the corporation's losses or the fiduciary's gains. Con sequently, such a doctrine will frequently overdeter fiduciaries from appro priating certain projects and may underdeter appropriation of others. This observation suggests (among other things) that the COD would be significant ly more coherent if courts paid greater attention to information structure than is currently the norm.