Sung Hui Kim

Fiduciary Law's Anti-Corruption Norm

This Chapter examines an important feature of the Anglo-American common law of fiduciary obligation — what I have previously characterized as the “anti-corruption norm.” While this norm has been invoked in a variety of different contexts and operationalized with different specific proscriptive conduct rules, the norm has broadly (albeit inconsistently) proscribed and punished the use of an entrusted position for self-regarding gain where the fiduciary has failed to disclose the gain to her beneficiary. The norm is animated by a concern that the fiduciary refrain from acting out of an illicit motive — that is, a motivation of self-enrichment — in contrast to the thoroughgoing devotion to the beneficiary’s interest reflected in the requirement of loyalty. As courts have occasionally articulated the concern, fiduciaries ought to avoid placing themselves in situations where there is a conflict between their duty and their self-interest, lest the temptation to disloyally exercise their duty-bound judgment proves too great to resist. This “temptation rationale” is suggestive of a moralistic, perhaps religious, understanding of corruption as a human failing and serves as an ethical and public policy basis for imposing fiduciary duties. This Chapter argues that the range of improper conduct that could be associated with corruption, as signaled by reference to the temptation rationale, is quite broad. It reaches this conclusion by analyzing the use of the anti-corruption norm in the following contexts: (i) bribes and secret commissions, (ii) opportunities, (iii) renewals and reversions, and (iv) confidential information. These categories are neither mutually exclusive nor do they exhaust the myriad situations in which the anti-corruption norm has been employed. Due primarily to space limitations, this Chapter excludes treatment of the classic self-dealing situations, where the fiduciary transacts directly with the beneficiary and thus appears on opposite sides of the same transaction — in both personal and fiduciary capacities.

What Governmental Insider Trading Teaches Us About Corporate Insider Trading

This book chapter explores a curious distinction that Henry G. Manne made in his influential 1966 book, Insider Trading and The Stock Market. On the one hand, Professor Manne defended corporate insider trading because of its potential to increase share price accuracy and its usefulness as a compensation tool for entrepreneurial innovations. On the other hand, Professor Manne denounced the practice of governmental insider trading, seeing no good reason to compensate government officials on the side and warning against “the ease with which inside information can be utilized as a payoff device.” This chapter argues that such a bifurcated position is unstable. It contends that just as governmental insider trading should be viewed as a form of public corruption, corporate insider trading should be viewed as a form of corruption in the private sector. Moreover, if one examines the reasons why public corruption in the form of governmental insider trading is normatively problematic, one sees that similar reasons apply to private corruption in the form of corporate insider trading. Thus, if one rejects governmental insider trading, one has good reason to reject corporate insider trading as well.