Abstract: In Anglo-American law, fiduciary duty is the core legal concept to address conflicts of interest of directors/managers and shareholders. The concept is developed and constantly refined by courts in the process of adjudication. By contrast, most civil law jurisdictions, including many transition economies, either lack the procedural rules that would enable parties to bring such cases to courts, or have not developed a sufficient body of case law to determine the contents and meaning of this concept. This paper asks, whether courts should be the primary lawmakers and law enforcers concerning the duty of loyalty. Based on our theory of the incompleteness of law, this paper argues that given a highly incomplete law, allocating lawmaking and law enforcement to courts is optimal when the expected harm does not have strong externalities. Breaching fiduciary duty is such an area, as “only” shareholders of that company, not the investing public at large will be harmed. While courts in transition economies may have difficulties living up to the task, we propose that for this particular area of the law, there are no better lawmaking and law enforcement mechanisms available. The case law they will produce is most likely to diverge from case law developed elsewhere, but this result is inevitable given incompleteness of law.
