About four years ago Keith Paul Bishop correctly explained that "it is easy to conflate directors and agents because both owe fiduciary duties. However, it seems to me that directors and agents are conceptually different." Nevertheless, as he recently observed, "the agency status of directors continues to be controverted."
Agents are fiduciaries of their principals. See Hill v. Bache Halsey Stuart Shields Inc., 790 F.2d 817, 824 (10th Cir. 1986) (holing that "all agents are fiduciaries 'with respect to matters within the scope of [their] agency'").
Directors are fiduciaries of the corporation and its shareholders. Marhart, Inc. v. Calmat Co., Del. Ch., CA. No. 11820, Berger, V.C., 1992 WL 212587 (Apr. 22, 1992), slip op. at 6 (reported in 18 Del. J. Corp. L. 330 (1992)) (“Delaware directors are fiduciaries and are held to a high standard of conduct ....").
But that does not mean that directors are agents. After all, "[t]here are many types of fiduciaries under the law, each with varying duties, “including agents, partners, directors and officers, trustees, executors and administrators, receivers, bailees, and guardians.” Tamar Frankel, Fiduciary Law, 71 Cal. L. Rev. 795, 795 (1983).
The law in fact is clear that "directors are not agents of the corporation." Mgmt. Technologies, Inc. v. Morris, 961 F. Supp. 640, 651 (S.D.N.Y. 1997).
As I explained in Agency, Partnerships & LLCs
Corporate employees, especially officers, are agents of the corporation.[1] Curiously, however, neither an individual director nor even the board as a whole is regarded as agents of the corporation.[2] An individual director, as such, “has no power of his own to act on the corporation’s behalf, but only as one of the body of directors acting as a board.”[3] As for the board, when it acts collectively, the board functions as a principal rather than as agent. Unless shareholder approval is required, after all, the act of the board is the act of the corporation. Consequently, the board can be said to personify the corporate principal.
[1] Restatement (Second) § 14 C cmt. a. A subsidiary of a corporation will not be deemed the agent of the parent corporation even though the latter has the power to control the former. A parent corporation thus cannot be held liable for the acts of its subsidiary on a principal-agent basis; instead, a plaintiff seeking to hold the parent liable must pierce the corporate veil of the subsidiary. Bunch v. Centeon, L.L.C., 2000 WL 1741905 (N.D. Ill. 2000).
[2] Restatement (Second) § 14 C.
[3] Restatement (Second) § 14 C cmt. b. Directors thus are a type of non-agent fiduciary, as are “trustees, ... executors, guardians, ..., partners and joint adventurers, and attorneys ....” Chisholm v. Western Reserves Oil Co., 655 F.2d 94, 97 (6th Cir. 1981). See Young v. Colgate-Palmolive Co., 790 F.2d 567 (7th Cir. 1986) (holding that “the directors are not acting as agents in their management of the corporation, but as fiduciaries”); U.S. v. Griswold, 124 F.2d 599 (1st Cir. 1941) (“The directors of a corporation for profit are ‘fiduciaries’ having power to affect its relations, but they are not agents of the shareholders since they have no duty to respond to the will of the shareholders as to the details of management.”); Arnold v. Soc'y for Sav. Bancorp, 678 A.2d 533, 539-40 (Del.1996) (“Directors, in the ordinary course of their service as directors, do not act asagents of the corporation .... A board of directors, in fulfilling its fiduciary duty, controls the corporation, not vice versa.”).
