Stakeholders thus, cannot depend on the implicit protection of stockholder self-interest. On the other hand, if management duty is measured by the interests of an undiversified stockholder, the duty is to maximize profits and to minimize risk. An undiversified stockholder will likely prefer a merely adequate return to a high return with high risk. Such an investor cares very much about the survival of the firm. Thus, stakeholder interests are implicitly protected if fiduciary duty is seen as owed to an undiversified stockholder or, more simply, to the corporation itself.
Rational investors diversify.
Thus, most commentators have naturally assumed that fiduciary duty should be construed as if owed to a diversified stockholder. Thus, in practice, management duty should be seen as owed to the corporation but not necessarily to the stockholders. Ironically, management is the one constituency that identifies most with the fortunes of the corporation as an entity. A diversified stockholder can afford to win some and lose some. Management stands to lose the most if the corporation fails.