Vanderbilt Law Review

First Page



Two parallel bodies of American law establish the obligations of corporate directors to disclose information about the corporation to its existing stockholders: (1) the Securities Exchange Act of 1934, and (2) state common law, including doctrines such as fraud and negligent misrepresentation. Although these state common law doctrines have been applied to transactions in corporate securities, their significance has been largely eclipsed by comprehensive federal regulation.

Of growing importance, however, is a state law duty that courts have created and imposed upon directors based upon their fiduciary relation to the corporation and its stockholders. In the last twenty years, this branch of fiduciary doctrine has blossomed prolifically, particularly in the Delaware state courts. According to the Delaware Supreme Court in Stroud v. Grace, it is now "well-recognized" that fiduciary duty requires directors to disclose all material information within their control when they seek stockholder action. Just thirteen days after the Stroud opinion was issued, moreover, a Delaware trial court went further, holding that a fiduciary duty to disclose all material information arises when directors approve any public statement, such as a press release, regardless of whether any specific stockholder action is sought.

As described in the Delaware cases, this fiduciary disclosure duty is deep, as well as broad. The duty is said to be strict, imposing liability without regard to director negligence or other culpability;s to afford stockholders a remedy without regard to whether they relied upon a statement made in violation of the duty; and to afford a "virtual per se rule" of damages, under which stockholders may obtain a monetary award on account of a breach of the disclosure duty with- out having to establish actual loss.