Corporate Art Collecting and Fiduciary Duties to Shareholders: Legal Duties and Best Practices for Directors and Officers

Thursday, January 1st, 2009 at 12:00 am by Denise M. Alter
Denise M. Alter, Corporate Art Collecting and Fiduciary Duties to Shareholders: Legal Duties and Best Practices for Directors and Officers, 2009 Colum. Bus. L. Rev. 1

Corporate art collecting burgeoned in the United States during the 1980s and 1990s. Corporations with large fine art holdings often justify their collecting activities by announcing that the corporation’s fine art enhances the workplace, motivates employees, and forges strong corporate-community ties. But the core objective of a corporation is to “create and increase wealth for its shareholders.” And while some art may appreciate in value if correctly acquired, if properly cared for, and if sold in the right market, the acquisition and stewardship of a large corporate fine art collection can cost many millions of dollars. Moreover, collecting art for other than sound business purposes, utilizing improper acquisition/disposition practices, neglecting artwork in the collection, or engaging in conflict of interest transactions in connection with the corporate fine art collection, may subject the company to liability and breach fiduciary duties owed by directors to the corporation and to its shareholders.

Indeed, when corporate scandals break, corporate art collections quickly make their way into the headlines. For example, less than forty-eight hours after Lehman Brothers Holdings Inc. filed bankruptcy in September 2008, the media began to question the fate of Lehman’s sizeable art collection. Within days, that media attention turned to the large personal art collection of Lehman’s Chief Executive Officer, Richard S. Fuld, Jr., and his wife Kathy–a trustee at the Museum of Modern Art in New York. One wonders why the fine art collecting activities of senior corporate executives, which impact their corporations, remain unchecked by corporate boards of directors. One answer may be the lack of statutory or decisional law and legal literature advising boards on the intersection of corporate art collecting and governance. Another may be that corporate expenditures for fine art and fine art collecting activities typically go unspecified to and unchallenged by shareholders. After all, if shareholders have no say in the multimillion dollar offices occupied by public corporations, why should they have any greater input into the multimillion dollar art collections that decorate those offices?

Corporate art collections pose unique challenges to directors charged with an “unyielding fiduciary duty to the corporation and its shareholders.” Although corporate insiders may not consider art in the corporate collection an investment, corporate shareholders may feel otherwise. Shareholders deserve to know that when valuable fine art assets are acquired by the company, those assets are properly purchased, acquired for sound business reasons, carefully stewarded, and disposed of consistent with the law and with best practices in corporate governance and fine art collection management. This Article examines corporate art collecting within the context of these legally mandated duties and best practices.

In this Article, we review the doctrines of primacy and corporate waste to evaluate whether corporate art collecting can maximize shareholder value or satisfy other legitimate business purposes. Corporations are advised to plan collecting activities strategically to ensure company art acquisitions align with sound business purposes justifying those purchases, and to set acquisition and collection management budgets that are reasonable and appropriate to the company’s ongoing financial condition.

Author Information

Denise M. Alter, esq. is the founding attorney at Bridge LawSM (