Meaning
Violations of the legal obligation to act in the best interest of another party constitute a failure of professional conduct. A fiduciary duty breach occurs when a director or officer puts their personal gain ahead of the company’s welfare. This includes taking corporate opportunities for oneself or engaging in undisclosed self dealing.
The law requires a high level of loyalty and care from those in positions of trust.
Liability Exposure
Damages for such actions often include the disgorgement of profits or the payment of losses incurred by the business. Proof of a fiduciary duty breach requires evidence that the individual had a duty and failed to meet the required standard. Plaintiffs often search through emails and bank records to establish a conflict of interest.
The lack of a clear recusal in board minutes can become a central piece of evidence.
Preventive Measure
Strict adherence to conflict of interest policies helps avoid these claims. When a director identifies a potential fiduciary duty breach, that individual should disclose the conflict immediately and abstain from related votes. Transparent disclosure protects the individual and the organization.
Ethical Standard
Trust remains the foundation of the relationship between a founder and their investors. The fiduciary duty breach represents a fundamental breakdown of that trust.