An important development in corporate law is the recent explicit
recognition, in a series of Delaware cases, that managers have a fiduciary
duty of good faith. That duty was not created by those cases. On the
contrary, the duty has long been explicit or implicit under the statutes-for
example, in statutory provisions that require directors to act in good faith
and in provisions concerning indemnification. The duty of good faith has
also long existed implicitly in the case law-for example, in the
formulation of the business judgment rule, and in fiduciary obligations that
can only be explained by that duty, such as the rule that a manager acts
improperly if he knowingly causes the corporation to take an illegal action.
Nevertheless, the explicit recognition of the duty of good faith in recent
Delaware cases shines a spotlight on that duty and therefore makes it
especially important to develop the contours of the duty and to examine the
duty from a normative perspective. It is these two issues with which this
article has been primarily concerned.
The duty of good faith has a Janus-like quality, looking both
backward and forward. Looking backward, the duty of good faith
rationalizes and explains a variety of specific obligations that are already
established, although they do not fit comfortably or at all within the duties