Mr Cooper Group Inc (COOP)

[David West]

Just as board members owe a duty of care and duty of loyalty to the corporation, they owe the same duties to shareholders because they are considered to be fiduciaries of the shareholders. In North American Catholic Educational Programming Foundation, Inc. v. Gheewalla, 930 A.2d 92, 99 (Del. 2007), the Delaware Supreme Court described the duties of directors to shareholders: It is well established that the directors owe their fiduciary obligations to the corporation and its shareholders. While shareholders rely on directors acting as fiduciaries to protect their interests, creditors are afforded protection through contractual agreements, fraud and fraudulent conveyance law, implied covenants of good faith and fair dealing, bankruptcy law, general commercial law and other sources of creditor rights. Thus, the source of the directors’ responsibility to shareholders is the fiduciary relationship.

A few points are important to note. Delaware courts, do not describe the directors as agents of the shareholders. Nor do Delaware courts state that the shareholders’ interests take primacy over all others. As Professor Lynn Stout of UCLA Law School astutely explains, the common belief that the board must always strive to maximize shareholder wealth is not supported in corporate law.