UC Law Journal
Abstract
This Article examines the fiduciary duties owed by directors of subsidiary corporations in light of traditional coprorate 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 shareholders places the directors in an untenable position.
Professor Gouvin argues 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 a 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 and the concurrent vulnerability 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, in which dominant form of ownership is the holding company but third parties such as regulators would have standing to bring claims on behalf of the regulated subsidiary.
Recommended Citation
Eric J. Gouvin,
Resolving the Subsidiary Director's Dilemma,
47 Hastings L.J. 287
(1996).
Available at: https://repository.uclawsf.edu/hastings_law_journal/vol47/iss2/1