The Two (or Three) Key Duties Owed by Corporate Fiduciaries

As you may know, a fiduciary relationship is the highest standard of care recognized by the law. It can be created through an explicit agreement to act as a fiduciary, or through a relationship which carries an implied fiduciary duty.

There are numerous different types of fiduciaries, but corporate fiduciaries such as business directors carry a particularly immense burden of duty and legal obligation to the shareholders of their corporation. Below we have detail the two key duties to which every corporate fiduciary must adhere, as well as a third which may also be required depending on the location of the business.

Duty of Care

All business directors owe to their corporations an explicit duty of care, meaning they are obligated to leverage all of their skills and knowledge to the best of their ability for the benefit of the company—particularly any special skills or knowledge which specifically led to their being placed in a fiduciary role. The standard for appropriate duty of care, generally speaking, is that one must exercise the same level or prudence and judgment in managing the affairs of the business that any person would in managing their own affairs. Thus, to put it even more simply, corporate fiduciaries must try their hardest and keep themselves well-informed so that they may use the best possible judgment in all decisions made on behalf of their corporation. Also inherent in the corporate fiduciary duty of care is the obligation not to unnecessarily waste corporate assets.

Duty of Loyalty

Perhaps even more important than the duty of care is the duty of loyalty corporate fiduciaries must exercise towards their company. As you might imagine, the duty of loyalty is the legal obligation to act ONLY in the best interests of the company. It requires that directors place the company’s best interests ahead of their own personal self interests, and prohibits corporate fiduciaries from leveraging their position to their own personal benefit. This means the director can have no conflict of interests that would prevent him or her from fulfilling the duty of loyalty. The only time a corporate fiduciary may make decisions that benefit his or her own personal interests is if the decision is obviously mutually beneficial for the company.

Duty of Good Faith

Depending on the location in which a company is incorporated, corporate fiduciary duties may also include a separate duty of good faith, or that duty may be considered an element of the duty of loyalty. Notably, Delaware corporate law includes a distinct duty of good faith, which means the corporate fiduciary must not only avoid actions to benefit his or her own self-interests, but other conflicting interests that may not benefit the company either. This could mean an intentional violation of the law or even simply making decisions for the company for improper reasons.

If you suspect that a corporate fiduciary, or any fiduciary for that matter, has acted in violation of his or her duty of care, duty of loyalty, or duty of good faith, it is vital that you enlist the services of a knowledgeable attorney to guide you and advise you on this complex area of the law. Contact the Trembly Law Firm today.