Fiduciary Norm

The fiduciary norm is a social norm that instructs the agent acting in his or her role of agency to act solely in the interest of his or her principal, without regard for any other interests, including the self-interest of the agent. The more highly dependent the principal on the agent's tasks of agency, the more likely is the norm to be triggered and to be more strongly prescribed.

As described in the following sections, the fiduciary norm requires the agent to make full use of the agent's skills; to expend all necessary effort to serve the principal; to exclude competing interests that could adversely affect the agent's actions for the principal, hence abiding scrupulously by the promise to serve the principal with perfect fidelity; to keep confidential information relevant to the relationship confidential; to make full disclosure to the principal regarding the agency, including the existence of any potentially competing interests; [Page 895]and to ensure that the agent's actions feature good conduct, that is, are not disreputable in a way that will adversely reflect on the principal.

The notion that special expectations are placed on a social actor on whom others are dependent has a long history in the common law. Indeed, the counterpart of the fiduciary norm in the law is the fiduciary principle, which plays a prominent role in the laws of agency, contract, and trusts. As a social norm, however, the fiduciary norm is prescribed in certain quite general social contexts of dependency, described below, whether or not the relationship of agent and principal is formal. The fiduciary principle, on the other hand, is mandated in legal relationships of agency in which the agent is at least nominally under the orders of the principal (or has contracted with a third party to serve a beneficiary's interests and must act as if the agent's activity is mandated by the contract to serve). The modern law of agency, which incorporates the expectations of the fiduciary principle, is summarized in the Restatement of the Law Third, Agency, published by the American Law Institute in 2006.

The fiduciary principle presumes that the agent is acting under direction and must follow that direction. Thus, corporate directors are expected to serve shareholders under the fiduciary principle because they are actors who are in a legal agency relationship with the owners, that is, they must, at least technically, follow the orders of their principals, the stockholders. As a huge case law documents, this relationship, including the failure to follow the fiduciary principle, can be enforced—sanctioned—by the courts.

The fiduciary norm is also enforced, if with less certainty and formality. The fiduciary norm does not, of course, have a legal status, such that there exist governmental enforcement agents to ensure performance consistent with its provisions. But some definitions of social norm require that a social instruction does not even have the status of a norm unless behavior deviant from the norm's prescriptions is sanctioned by the community. In general, such sanctions are negative, though positive ones given on correct performance of the norm are also consistent with normative status.

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