Resolving the Subsidiary Director's Dilemma
This article examines the fiduciary duties owed by directors of subsidiary corporations in light of traditional corporate law and the special circumstances of the parent-subsidiary relationship. In some circumstances corporate law imposes upon directors duties running not only to the shareholders but also to nonshareholder constituencies such as "the corporation" or creditors. In the parent-subsidiary context, imposing duties that run to any group other than the parent shareholder places the directors in an untenable position.
This article advances the position that in the parent-subsidiary context, directors of subsidiaries should be held to owe a duty solely to their parent shareholder. Any duties that corporate directors ordinarily owe to nonshareholders, including any duty to the "corporation" defined broadly, should be imposed directly on the parent shareholder rather than on the individual directors of the subsidiary. Such a scheme would relieve subsidiary directors of the dilemma created by the practical necessity of doing the shareholder's bidding while at the same time being vulnerable to attacks by other constituencies, especially "the corporation," for failure to discharge duties to nonshareholders. This problem is especially pronounced in industries subject to heavy regulation, such as the banking industry, where the dominant form of ownership is the holding company but where third parties such as regulators have standing to bring claims on behalf of the regulated subsidiary.
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