Abstract

This article argues that considerations of moral psychology support the traditional stringency of the rule according to which fiduciaries who get involved in a potential conflict of interest shall be stripped of all their gains. The application of the rule, regardless of good faith on the part of the fiduciary, is being contested by courts and academia alike. The article is focused on the ‘deterrence’ justification for the rule, and argues that its unusual strictness should be read as a response to a substantial risk of conscious-silencing self-deception. Given the knowledge gap between them, the principal is very much dependent on the fiduciary's personal integrity but, in the grip of self-deception, the fiduciary's inner checks break down so that manipulative transactions are approved as harmless ones. Two distinctive features of the fiduciary relationship increase the chances that even a professional and virtuous fiduciary will be moved by self-deception to misapprehend the harm which a conflict of interest might cause to the principal: first, the wide discretion in the application of the fiduciary's duty to specific situations; and, second, the power gap between the fiduciary and the principal which enhances the temptation to exploit the fiduciary's position. This risk can only be averted by the more stringent version of the rule, as it is only by preventing the fiduciary from ever considering the legitimacy of a specific conflict of interest that we can hinder the process of reflection which is so prone to being subverted by self-deception