Lord Eldon Redux: Information Asymmetry, the Roots of Accountability, and the Structure of Fiduciary Loyalty

Abstract: This paper investigates the development of accountability and fiduciary loyalty as an institutional response to information asymmetries in agency relations, especially in firm-like settings. Lord Eldon identified the crucial role of information asymmetries in opportunistic behaviour during the formative era of fiduciary loyalty in early nineteenth century, but its roots are much older. A thirteenth century trend toward direct farming of English manors and the transformation of feudal accounting after the Domesday Book and early Exchequer period engendered profound developments. The manor emerged as (possibly the first) profit-maximising firm, complete with separation of ownership and control and a hierarchy of professional managers. This primordial firm relied on primordial fiduciary loyalty - an accountability regime that was uniquely tailored for addressing information asymmetries in agency relations. Courts have gradually expanded this regime, which in due course enabled Equity to develop the modern duty of loyalty. These insights suggest implications for contemporary fiduciary loyalty.