In business, trust and accountability are essential. If someone does not uphold their duties, it can lead to serious losses and legal issues. One important responsibility to consider is fiduciary duty. What should you know?
What is a fiduciary duty?
A fiduciary duty is the responsibility of one person or organization – called the fiduciary – to act in the interests of another. This duty is based on trust and confidence, and the fiduciary must put the beneficiary’s interests above their own.
This can include:
- Duty of loyalty: They should avoid conflicts of interest. They should also not make money at the beneficiary’s expense.
- Duty of care: They should make smart and careful decisions and be diligent.
- Duty of good faith: They should act honestly and with integrity.
What can breach look like in a business?
Breaches can vary depending on the company and the person involved. These can include:
- Self-dealing: If a fiduciary uses their position to benefit themselves, that choice can harm beneficiaries. For example, a corporate officer might approve a contract with a company they own without telling anyone.
- Misusing assets: A fiduciary might use or take assets for personal gain instead of helping the principal. For example, they might use funds for personal investments.
- Failure to disclose: A fiduciary must share vital information that affects the beneficiary’s interests. Not doing so, like hiding financial losses from shareholders, is a breach.
- Poor management: If a fiduciary does not effectively manage or protect the beneficiary’s assets or interests, it can cause financial loss. For example, it can be an issue if an investment advisor does not diversify a client’s portfolio.
What can you do to protect your company?
Businesses can reduce risks by creating clear policies and keeping a close eye on fiduciary relationships. Businesses can also take steps to hold fiduciaries responsible through a lawsuit if a breach occurs.
However, taking legal action can be complex. It often requires detailed evidence and expert testimony to establish the fiduciary relationship and the breach. Having an experienced attorney can help a company seek justice after a breach.
You can protect your business from breaches
By knowing about fiduciary duty and recognizing breaches, businesses can protect themselves and maintain trust with stakeholders.