What does fiduciary duty mean?

Fiduciary duty is quite a simple concept.

Fiduciaries are individuals who must put their clients’ interests ahead of their own. Their clients are called beneficiaries or principals.

As a board member, your fiduciary responsibility is to act in the best interests of the company and the shareholders you serve.

Having a fiduciary duty is an important responsibility. Damages could be awarded to beneficiaries if a fiduciary fails to fulfil their duty, and this is called a breach of fiduciary duty.

There is a requirement for directors to act in good faith, act honestly and responsibly, and according to the company’s constitution.

Watch the video below for a one minute explanation of what fiduciary duty means.

The primary fiduciary duties of company directors are set out in the various companies acts of different states, and most are the same.

There is a requirement for directors to act in good faith, act honestly and responsibly, and according to the company’s constitution.

Directors and board members should disclose any potential conflicts of interest. They should not use company information or property for anyone else’s benefit unless permitted to do so by the company’s constitution.

• A director should act for the purpose of which they were appointed and should not exceed their remit.
• They may not obtain a secret profit from their position and must account for any benefit received.
• They must provide a certain standard of skill and care in their dealings.
• The director must make it clear to third parties that they are acting as an agent of the company.

For many, such duties will be straightforward. However, for some directors, who are, for example, also shareholders at the same time, further clarification may be needed.

In times of high pressure in the business, it is vital to ensure such duties and obligations are being followed and that all directors are compliant.

A company can legally pursue any directors who have failed in their duties.

Directors must never sensitive company information is crucial, but directors must cover many duties and responsibilities when dealing with different stakeholders.

By upholding these principal fiduciary duties, the directors reflect a relationship of trust between the company and its stakeholders.

When making decisions, a director should consider the long term consequences for the company and its reputation, the potential impact on employees, suppliers, customers, and the local community, and they should ensure that they are treating all shareholders with equal consideration, whether they hold a small or large amount of shares.

All potential conflicts of interest must be disclosed.

It is still possible the conflict may be approved according to the company’s constitution, so long as it is adequately revealed.

Likewise, any special interests should be declared before engaging in transactions or arrangements.

Where there has been loss or damage to the company or any of its stakeholders, they can personally take action against a director.

A company can also pursue any directors who have failed in their duties.

The director can be removed from office, and in some situations, shareholders can take individual litigation proceedings.

The director can also be pursued through the courts and suffer bankruptcy or loss of property.

In summary, the fiduciary duties of company directors are to:

• act in good faith
• act honestly and responsibly
• act under the company’s constitution
• not use the company’s information, property, or any opportunities regarding the company for their own or anyone else’s benefit, unless permitted by the company

Any conflict between directors duties to the company and their other interests must be avoided and should act in the interests of all stakeholders, taking appropriate care.