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Loyal to Whom?  Recent Delaware Decisions Clarify Common Stockholders Are Primary Beneficiaries of Directors' Fiduciary Duties

May-June 2010

Given the unremitting nature of a director’s fiduciary duty of loyalty, one of the more interesting questions in corporate law—and one of the most difficult questions directors can face in the boardroom—is how a director can satisfy his duty of loyalty to two or more corporate constituencies if the interests of those constituencies are directly in conflict.  Recent decisions from the Delaware Court of Chancery and the Delaware Supreme Court provide much-needed guidance in this area. These cases clarify that where the interests of preferred and common stockholders conflict, directors may prefer the interests of the corporation's common stockholders, as long as the contractually defined rights of the preferred stockholders are honored.
 
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