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171 U. Pa. L. Rev. Online 1 (2023)

handle is hein.journals/pennumbra171 and id is 1 raw text is: ESSAY FIDUCIARY DEADLOCK ROBERTO TALLARITAt In the current ESG debate, one leading theory argues that diversified investors have a financial incentive to reduce negative corporate externalities, such as greenhouse gas emissions, because they internalize those externalities within their investment portfolio. This Essay examines how this portfolio primacy theory interacts with the multiple layers of fiduciary duties of investment and corporate managers. Using a hypothetical emissions reduction in ExxonMobil as a paradigmatic case, I show that portfolio primacy creates a fiduciary deadlock: a situation in which multiple fiduciary relationships-between investment advisers and fund investors, between corporate managers and shareholders, and between controlling and minority shareholders-come into conflict with each other. I argue that, within the existing structure of fiduciary law, portfolio primacy will prove ineffective in promoting ambitious social and environmental goals. Indeed, the only way to solve the fiduciary deadlock is to abandon the central tenet of portfolio primacy. INTRODUCTION................................................................................ 2 I. INVESTMENT STEWARDSHIP AND PORTFOLIO PRIMACY .............. 7 II. A WEB OF FIDUCIARY RELATIONSHIPS ......................................10 A. A Motivating Hypothetical.............................................................. 10 B . The Players................................................................................. ii C. Fiduciary Duty .............................................................................. 13 D . Fiduciary Relationships ................................................................ 14 t Lecturer on Law, Terence M. Considine Senior Fellow in Law and Economics, and Associate Director of the Program on Corporate Governance, Harvard Law School. For helpful conversations and comments, I am grateful to Rick Alexander, Lucian Bebchuk, Matthew Conaglen, Will Collins- Dean, Jared Ellias, Marc Gerber, Scott Hirst, Kobi Kastiel, Holger Spamann, and Andrew Tuch. The Harvard Law School Program on Corporate Governance and the John M. Olin Center for Law, Economics and Business provided financial support. (1)

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