The Fiduciary Duties of Corporate Directors

Corporate directors play an essential role within their organization. It’s more than just a title. These men and women are tasked with overseeing the corporation’s progress and ensuring its mission statement is fulfilled. While this may seem like a vague concept, even lip service, there’s actually a whole legal concept built around it.

Fiduciary Duties

Legally, a fiduciary duty is a mandate to act completely in someone or something else’s interest. When it comes to someone having a fiduciary duty toward another person, they’re not allowed to profit without their principal’s consent. Examples of those with fiduciary duties would include doctors, lawyers, and guardians.

With a corporation, it’s implied that a director will be profiting from the organization’s progress. Part of their fiduciary duty, though, means not profiting by hurting the corporation in some way. In that way, the director has a fiduciary duty to their shareholders.

These duties also detail how corporate directors will deal with one another. Basically, they must be honest, act with good faith and be accountable to the other directors.

The End of Fiduciary Duties

For the most part, fiduciary duties can come to an end. Prime examples would be if a director resigned or was otherwise removed. At that point, they’re free to do what they like with complete neglect of their fellow directors, corporation or its shareholders. Of course, legally, there may be other mandates they are contractually obligated to follow (e.g. non-compete clauses, non-disclosure agreements, etc.)

Legal Mandates

There is no one single mandate across states or countries in terms of what fiduciary duties explicitly cover. For the most part, however, it is recognized that directors must be loyal to their organization and always act with its best interest in mind. This includes sacrificing personal benefit if it means doing right by the corporation.

It may also mean how the director seeks to run the business itself; to that end, it could involve the employees themselves. A corporate director’s fiduciary duties could mean ensuring that they’ve picked the best possible healthcare or retirement plan for their employees.

As you can imagine, fiduciary duties can become vague quick. Obviously something like buying stock in the competition is a pretty clear sign a corporate director may not be acting in the best interest of the company he sits on the board for.

Other times, though, it can be tough to legally prove that a director didn’t think their decision-making would be right for the company. Even a terrible decision isn’t grounds for legal measures if the director thought it was a good one.

Clearly, a lot goes into being a corporate director. Most live or die based on who gets a seat at the table. If you have a chair to fill and want help with the process, my years of experience are at your disposal. While there are legal ramifications for those who jeopardize their fiduciary duties, it’s best if you can avoid any problem in the first place. With my expertise, I can help make sure this happens.