Turning Servile Opportunities to Gold: A Strategic Analysis of the Corporate Opportunities Doctrine

The corporate opportunities doctrine ("COD") regulates when and whether a corporate officer or director may appropriate new business prospects for her own account without first offering them to the firm. The doctrine - a subspecies of the fiduciary duty of loyalty - has been a mainstay of corporations law in most states for well over a century. At the same time, however, the COD has always been murky in application and is currently in a state of considerable disarray. In this Article, Professor Eric Talley attempts to chart a course out of this doctrinal quagmire by offering a contractarian account of the COD as a default mechanism for allocating intrafirm property rights between shareholders and fiduciaries. To animate his analysis, Professor Talley develops a game-theoretic model of 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. Consequently, such a doctrine will frequently overdeter fiduciaries from appropriating certain projects and may underdeter appropriation of others. This observation suggests (among other things) that the COD would be significantly more coherent if courts paid greater attention to information structure than is currently the norm.