In business, fiduciaries can include the company’s corporate directors and officers, board members and executives, asset managers and financial planners, trustees and attorneys – among others. Essentially, it’s any person who has a duty to put the company’s needs ahead of their own.
When a fiduciary fails to uphold that obligation to act in the best interests of that other party (or “principal”), that’s a breach of their duty. A breach could involve any violation of trust or any action that’s at odds with their overall responsibilities.
What are some examples of breaches of fiduciary duty?
Breaches can take various forms, including:
- Self-dealing: This is when a fiduciary benefits personally from their position or actions to the detriment of the principal. For example, an executive might award a lucrative contract to a service company in which they have a personal stake, rather than choosing the company that will do the best job at the lowest price.
- Negligence or incompetence: Fiduciaries are expected to exercise reasonable care, skill and diligence in carrying out their responsibilities. When they fail, that can be a breach of their fiduciary duty. For example, an investment advisor who recommends an investment strategy that doesn’t take into account the client’s risk aversion could be a breach.
- Misappropriation: When a fiduciary improperly uses the principal’s assets or funds for personal gain, that’s a problem. An attorney embezzling client funds or a trustee misappropriating a business trust’s assets would be examples of this kind of breach.
- Conflicts of interest: Fiduciaries are supposed to avoid situations where their personal interests conflict with their obligations. For instance, a board member of a company voting on a merger deal where they have a personal stake in the outcome could be engaging in a breach of duty.
- Breach of confidentiality: Financial advisors, company executives and other professionals must protect confidential information. Revealing company marketing secrets or client lists, for example, could be a breach.
Sometimes, breaches of fiduciary duty happen by accident. Sometimes they’re intentional. If you believe that you have a situation on your hands where your company has been harmed by a breach of someone’s duty, it may be time to seek tailored legal assistance.