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Viewed from a distance, there is something surprising about the

fact that the legal standards that govern the conduct of corporate

managers -directors, officers and controlling stockholders -differ in

their source and origin depending on whether one is speaking of relations

with the company itself or of relations with its security holders. At

the security holder level, it is of course the federal securities statutes

that have primary effect. Federal proxy and insider trading rules,

together with federal disclosure requirements, are the prevailing constraints

where relations between managers and investors are concerned.

At the company level, by contrast, it is the statutory and common

law of the state of incorporation that chiefly governs. Fiduciary

limitations on dealings between the company and those who manage or

control the disposition of its property have long been reserved to the

states, of which Delaware, being the principal state of incorporation, is

the most important. In effect, then, despite the economic identity that

exists between the firm and its security holders, fiduciary obligation is

at present dichotomized between federal and state legal systems which

have no very close connection to one another; the federal system

dominates the security holder level while the various state systems

dominate at the firm level.

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