Fiduciary duty is a bond between a principal or beneficiary and a fiduciary. They both enter into a legal agreement where the principal trusts the fiduciary to act on the principal’s behalf, and the fiduciary has the legal obligation to fulfill their duty with reasonable care and prudence. A breach of fiduciary duty occurs when the fiduciary fails to act in the principal’s best interests.
Any person in a business, regardless of whether an employee or shareholder, can have a fiduciary duty to another party once they have legally agreed to it. They breach their fiduciary duty when they use company assets and corporate resources for their own personal gain. They take advantage of the fiduciary duty a principal entrusts in them to further their own pursuits.
When does a breach of fiduciary duty occur in a business?
A business involves multiple relationships. Its success is contingent on each person fulfilling the duties expected of them. Here are examples of when a breach of fiduciary duty can affect a business:
- An employee who fails to keep company trade secrets and intellectual property confidential
- An employee embezzling company funds
- A fund manager misappropriating the funds of investors
- A shareholder entertaining a third party looking to pursue a hostile takeover
- A board member who uses their position to their advantage at the company’s expense
- A company misappropriating their client’s assets
- A company using their client’s profile and information without the client’s consent
A fiduciary accepts a legal obligation to act on behalf of the principal in good faith and with a reasonable sense of professional integrity and fidelity. They must ensure that no conflict of interest compromises the principal’s interests.
Transparency is a professional courtesy
A fiduciary can prevent breaching their duty by being transparent to the principal. They express their intentions and explain their goals so they can see if the principal is amenable to the outcome they envision. It is all about being honest with what you want from the relationship. Communication is the key to any successful relationship, even if it is a business relationship.