Document Type



This Article addresses a crucial innovation in corporate law: the emergence of a jurisprudence of good faith. Although it has long been cited as a background principle in corporate decision-making, a line of recent cases suggests that good faith has become a distinct fiduciary duty or, at the very least, a separate standard of review. This development is extremely significant in corporate law because it promises (or threatens, depending upon your point of view) to shift the frontier of the business judgment rule and result in greater judicial intervention in corporate governance. Whether the duty of good faith will ultimately have this effect, however, remains unclear. It is the central thesis of my Article that it will not.

I argue that the emerging duty of good faith is best understood as a principle of interpretation rather than a substantive standard. Good faith, in other words, is not now and is not likely ever to develop into a distinct line of doctrine involving sub-rules and multi-part tests. Instead, the jurisprudence of good faith involves what I call "Thaumatrope analytics," in which the court raises issues under both the duty of care and the duty of loyalty but, rather than following either traditional analysis through to a conclusion, mixes the two together and, in doing so, identifies a basis for liability that it now calls "good faith."

By treating good faith as a principle of interpretation rather than a substantive standard, I do not mean to denigrate its significance in corporate law. I mean to celebrate it. The jurisprudence of good faith offers a highly flexible, contextually contingent interpretive tool which the judiciary may wield with force or restraint, as the situation dictates. Good faith permits courts to respond not only to the facts raised in litigation, but also to the world outside the courtroomthat is, the cultural context of the dispute. Furthermore, I argue that the lack of a substantive doctrine at its core and the resulting high degree of interpretive flexibility does not mean that good faith analysis is unprincipled. Thaumatrope analytics can be defended when the concepts underlying the categories are related, and the good faith Thaumatrope is grounded on the interconnectedness of the duties of care and loyalty. The result is a rhetorical device that permits the judiciary to respond to situations of scandal and crisis on an as-needed basis without upsetting the long-term balance between authority and accountability.

Date of Authorship for this Version

August 2004


corporate governance