Corporate Officer Fiduciary Duty

A fiduciary duty represents the highest standard of care imposed by law. Read on to learn what corporate fiduciary duty means and how you must uphold it.

At Gardner Employment Law, we understand the various issues and duties executives must face. If you want to learn more about your fiduciary duty or are concerned that others may be breaching theirs, contact us today.

What is a Fiduciary Duty?

A fiduciary duty is essentially the duty to put something or someone else’s interests above your own.  The fiduciary duty arises from the trust that the other person has entrusted you to handle matters for him or her in the best manner possible.  You are called the fiduciary, and other the person is the trustee or beneficiary. A fiduciary duty can arise in many different contexts.  For example, corporate officers have a fiduciary duty to prioritize the interests of the corporation and the shareholders above those of the C-suite executives.

A fiduciary duty does not only lie in the business world, other professionals such as lawyers and physicians also have a fiduciary duty to put the care of their clients and patients above their personal interests. The person managing financial assets for another has a fiduciary duty.  A pharmacist has a fiduciary duty in answering a customer’s questions about prescription medications.

It may seem strange that in all of these different contexts, the fiduciary duty remains the same, that the fiduciary must always put the trustee’s interests before his own. However, it makes more sense when you realize the range of responsibilities the fiduciary duty entails.

What Are the Specific Duties of a Fiduciary?

In the table below, we explain the various fiduciary duties of care, loyalty, good faith, confidentiality, and full disclosure. While the responsibilities of a fiduciary duty may change depending on the state where you are located, here are the general responsibilities which are common within the fiduciary duty:

 

Duty of Care 

A fiduciary must perform his or her duties in a well-informed and reasonable manner. Executives, directors, and officers of a corporation must make business decisions on behalf of the corporation that pursue the corporation’s interests with reasonable diligence and prudence.

Duty of Loyalty

A fiduciary must act without personal economic conflict. The fiduciary also must watch for conflicts of interest and ensure that no conflicts affect the fiduciary’s actions.  The fiduciary must place the trustee’s interests above all else.

Duty of Good Faith 

A fiduciary must act in good faith by fulfilling their obligations without violating the law. A fiduciary should be honest and conduct business dealings with others fairly.  The fiduciary must always “take the high road” in acting on behalf of the trustee.

Duty of Confidentiality 

A fiduciary must keep corporate information confidential and not use or disclose it for personal gain.  The fiduciary must protect the trustee’s information from disclosure and may reveal confidential information only with the trustee’s approval.

Duty of Full Disclosure

When a fiduciary is required to disclose any information, especially about himself, he make the disclosure fully and with “complete candor.” A fiduciary must be forthright and disclose any relevant information that may affect the fiduciary’s and trustee’s relationship, such as a conflict of interest.

 

Some of these duties may seem redundant or overlapping, but that is because the responsibilities of a fiduciary are extremely important. If you think one of these duties pertains to you and you do not know how you should manage a particular situation, reach out to us today.

Who Has a Corporate Fiduciary Duty?

Fiduciary duties typically arise when one person is legally responsible for another’s interests, such as in the case of executives, presidents, partners, and corporate officers. Without a special type of relationship, where one individual is responsible for the interests of another, a fiduciary duty does not arise. While being honest and caring for the interests of your friends and family is important, this situation by itself does not create a fiduciary duty.

Texas courts hold the fiduciary duty in high esteem. Generally, the courts are unwilling to state that there is any fiduciary duty within informal, loosely created relationships. However, in formal relationships such as those which corporate officers have with the company, the board of directors, and the shareholders, Texas courts are quite willing to find a fiduciary duty. If you believe that you may have a fiduciary duty but are unsure, you should consult with an expert attorney regarding your specific situation. Running afoul of your fiduciary duty may produce costly problems if you are unaware that the duty exists.  The penalties for breaching your fiduciary duty can be immense.

Understanding Corporate Officer Fiduciary Duty

A fiduciary duty is breached anytime the fiduciary takes an action, or fails to take required action, which is contrary to the fiduciary’s responsibilities and causes the trustee harm. Generally, in Texas, the elements for this type of claim are (1) the existence of a fiduciary duty, (2) a violation or breach of a duty to the trustee, (3) the breach or violation was the cause of some type of harm to the trustee, and (4) resulting damages can be proven.

If a fiduciary breaches his or her duty, the trustee can recover any damages resulting from the breach. If the breach was intentional, the fiduciary may be additionally charged with punitive damages as a punishment for the intentional violation.

The case of Luxor Capital Partners v. Richard Stollmeyer illustrates the importance of the corporate fiduciary duty. Richard Stollmeyer, the former CEO of Mindbody, Inc., attended an event for Vista Equity Partners, which he did not disclose to the board of directors.  At that event, Stollmeyer believed that by inducing Vista to purchase Mindbody, he could remain as CEO while also reaping large profits for himself. Moreover, Stollmeyer would provide Vista investors preferential treatment and easy access to his attention. Ultimately, Vista purchased Mindbody through a stock deal at a price cheaper than the company would have sold otherwise. This more affordable deal directly resulted from Stollmeyer’s scheme to induce Vista to acquire Mindbody.

Stollmeyer had a fiduciary duty to Mindbody and its shareholders as its CEO (first step). This fiduciary duty required him to secure the best deal possible for the company and its shareholders. Since Stollmeyer did not pursue the best deal but instead gave Vista preferential treatment so that he would collect profits, he breached his fiduciary duty (second step). This breach resulted in the company being sold for less than it was worth, damaging its shareholders (third step).

As a result, Stollmeyer was ordered to pay the difference between the price Vista bought the company for and what the company was actually worth, $48 million (fourth step).  The court ruled, “The record is riddled with instances when Stollmeyer tilted the playing field in Vista’s favor.”

Key Takeaways

Executives, vice presidents, corporate officers, directors, and other professionals must be mindful of this all important fiduciary duty. A fiduciary duty entails several responsibilities that can be easily overlooked during the day to day challenges if not well understood. In the fast-paced business world, it can be difficult to keep every duty and responsibility in our awareness. However, by failing to uphold your fiduciary duty you risk losing your job, much money, and even your reputation.

If you want to know more about fiduciary duty or want to know whether or not you are in conflict with your duty, contact us today.

Email
Scroll to Top