What Is Fiduciary Duty?

Fiduciary Duty / Fiduciary Duties

Fiduciary duty relates to the responsibilities bestowed upon one party tasked with managing property or finances for another. In the case of a board of directors, each board member has a fiduciary duty to the company and its investors.  

The fiduciary is legally responsible for performing duties of confidentiality, loyalty and good faith to serve the beneficiary’s best interests. 

Key principles

Fiduciary duty is rooted in the following core principles:

Duty of care

The fiduciary must exhibit skill, professionalism and prudence in performing their duties. They must make decisions, manage resources, stay informed and seek expert advice when necessary to deliver on their duty of care.

Duty of loyalty

Fiduciary duty involves always acting in the best interests of the beneficiary. These interests must come before those of the fiduciary or any third party.

Duty of confidentiality

The fiduciary is responsible for maintaining confidentiality regarding the beneficiary’s sensitive information and proprietary data. They must prioritise the protection of the beneficiary’s privacy, rights and interests.

Duty of good faith

Fiduciaries are duty-bound to act honestly, fairly and in good faith. They must exhibit integrity and ethical behaviour in all interactions and decisions related to the fiduciary relationship.

Fiduciary duty considerations for directors

Directors have the following fiduciary duties to uphold good governance:

Avoiding or disclosing conflicts of interest

They must identify and disclose any conflicts of interest that might hinder them from serving the organisation’s interests. This includes avoiding activities and relationships that could compromise their impartiality.

Acting in the best interests of the organisation

Directors must act honestly and in the best interests of their company and its stakeholders. They are expected to make informed decisions, create strategies to promote the company’s long-term success and safeguard its reputation and values.

Preventing misuse of company information

Among a director’s fiduciary duties is confidentiality and protection of sensitive company information. They must safeguard any sensitive, proprietary and private information from unauthorised disclosure or misuse. This includes respecting privacy rights, intellectual property and trade secrets that could undermine the company’s competitive stance.

Avoiding conflicts with other directors

A director must take measures to foster a cooperative, respectful and productive boardroom environment. They must exhibit open communication, trust and mutual respect to avoid personal disputes and disagreements that could weaken board effectiveness.

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