What Is Fiduciary Duty?
Directors have a fiduciary duty to the company and its stakeholders. This page explains more and puts the term in context.
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.