 hold a position of significant trust and responsibility. They’re tasked with overseeing the strategic direction of the company, ensuring its financial health and protecting the interests of its shareholders. It’s common for modern boards to be diverse, with directors bringing their expertise from a range of backgrounds and experiences. With that comes expertise in different fields, such as technology, finance and risk management. This means they must understand their duties to the shareholders.

Fulfilling these obligations requires a firm understanding of a board member's fiduciary duties. In this article will cover:

The different types of fiduciary relationships

Regulatory bodies and legal frameworks for fiduciary duty to shareholders

11 tips for new board members to uphold fiduciary duties

So, what are fiduciary duties? For businesses, the board of directors’ 

 to shareholders is the legal and ethical 

 of board members (known as the fiduciary) to act in the best interests of the business and its shareholders. There are also specific corporate laws that outline fiduciary expectations. It’s the most important and basic obligation required to ensure a strong legal and professional relationship between every board member and the organization.

There are many reasons why upholding fiduciary duties is important:

Ensures legal and moral integrity are maintained

For new directors, thorough onboarding processes are vital to ensure they understand these duties, especially as they protect shareholders’ interests.

What are the three main fiduciary duties? The three core fiduciary duties of a board member to fulfill their fiduciary duty to shareholders are the duty of care, the duty of loyalty and the duty of obedience. These duties form the foundation of good 

 and guide board members in making decisions that are in the best interests of the corporation.

 This duty requires board members to act with reasonable diligence and prudence. This translates to attending meetings, actively participating in discussions, reviewing relevant materials, and making informed decisions based on all available information. Board members should possess the necessary skills and qualifications to understand the complexities of the business and exercise sound judgment. This is all part of the broader expectations outlined in legal frameworks, which require directors to use their better judgment.

 This duty demands undivided loyalty to the corporation and its shareholders. Board members must avoid conflicts of interest and prioritize the company's well-being above personal gain or the interests of any other entity. This includes refraining from using their position for personal advantage, taking corporate opportunities for themselves or engaging in self-dealing transactions. Transparency and disclosure of potential conflicts are also an important part of the duty of loyalty.

 This duty compels board members to act in accordance with the law and the company's governing documents, such as the articles of incorporation and bylaws. This ensures the corporation operates within legal boundaries and adheres to established procedures. It also extends to adhering to the organization’s bylaws and articles of incorporation, which are structured to ensure compliance.

While these are the three core duties, they’re certainly not where it ends. There are many more important fiduciary duties that ensure fairness, integrity, transparency and trust:

 All actions must be honest, and decisions must be made based on integrity. The success of the business is always the priority. These decisions must also align with the organization’s beliefs, goals and values.

 All board members must adhere to confidentiality and privacy agreements to protect the organization’s operations, finances and strategies.

 Board members must take an active role in overseeing every aspect of the business to ensure they can make informed and effective decisions.

 Decisions must be made carefully and cautiously, using information and data to ensure strong decision-making. Risks must be considered at all times to protect the business’ assets, resources and reputation.

 Board members must take ownership over their actions and decisions, ensuring complete transparency to stakeholders and members of the public.

There are many types of fiduciary relationships. A relationship can be classed as fiduciary if one party is acting on behalf of or advising another. They must ensure they’re working together with the best interest of the beneficiary in mind.

Examples of fiduciary relationships include:

Corporate board of directors and shareholders:

 must act in the best interests of the shareholders, making decisions that fulfill the fiduciary duty to maximize shareholder value. This includes duties of care, loyalty, and good faith, such as avoiding conflicts of interest, not using company information for personal gain, and acting with prudence and diligence in managing the company’s affairs.

 Lawyers are expected to prioritize their clients’ interests over their own, maintain client confidence, provide competent representation, and disclose any relevant information that can affect the client’s case or decisions.

 Financial advisors have a fiduciary duty to prioritize their client’s best interests, provide unbiased advice and disclose any conflicts of interest. They must base investment recommendations on the client’s financial goals and risk tolerance, ensure optimal transaction execution, and diligently monitor the client’s investments and financial status.

 In this fiduciary relationship, the trustee administers the assets in a trust solely for the beneficiary’s benefit. The trustee must manage the trust assets with care and skill, avoid conflicts of interest, and act solely in the beneficiary’s interests. This includes making prudent investment decisions, ensuring the trust assets are secure, and distributing the assets according to the terms of the trust. The trustee is legally accountable to the beneficiary for their actions and decisions regarding the trust.

 This relationship is common in many business transactions, where the agent has the authority to act in the principal’s stead in contractual situations, negotiations, or other business dealings. The agent must also provide the principal with all relevant information that can affect the principal’s decisions.

There are several regulatory bodies and legal frameworks that determine fiduciary duties to shareholders. Some of these include:

 SOX aims to increase transparency and accountability of board members with financial reporting.

Dodd-Frank Wall Street Reform and Consumer Protection Act

 An act to increase financial institutions’ transparency with regard to pay to ensure shareholder interests are a key consideration.

 Implemented to ensure companies disclose information to shareholders and receive information at the same time.

 Because Delaware is a business-friendly state, many businesses are based there. The DGCL is the state’s framework that outlines organizations’ fiduciary duties.

 The CBCA outlines specific fiduciary duties with an emphasis on protecting stakeholder interests.

There are many ways a board member can commit a breach of fiduciary duties to shareholders. Here are a few common examples:

Making decisions without adequate information: 

This could involve failing to attend important meetings, reviewing key financial reports, or asking questions about proposed transactions.

 This occurs when a board member uses their position for personal gain, such as awarding contracts to their own businesses or approving risky transactions that benefit them financially. This is particularly problematic as it demonstrates a failure to prioritize corporate and stakeholder interests, which goes against the duty of loyalty.

 This could involve failing to investigate potential wrongdoing within the corporation or turning a blind eye to unethical behavior by management.

 Board members have a duty to oversee the actions of management and ensure they’re acting in the best interests of the corporation.

 Leaking confidential information, whether intentionally or otherwise, breaches fiduciary duty.

 Unethical conduct, such as fraud or embezzlement, is a major breach of fiduciary duties.

 Offering benefits to friends and family over others can be classed as a breach of duty or loyalty.

 Keeping important information secret means there’s a lack of transparency, which is a breach of duties of good faith and accountability.

Consequences of breaching fiduciary duties

There are three main consequences of breaching fiduciary duties, which can harm both individual board members and the business as a whole. These consequences can have a major legal and financial impact on both parties and risk the future of the business. If the business commits a crime, there is also the risk of prison time.

 There may be major legal ramifications in the event of a breach, including lawsuits and, in some extreme instances, criminal charges. Court cases can result in fines, restitution and injunctions. Boards should conduct regular self-assessments to ensure compliance and fulfill their fiduciary duties.

 In the event of a breach of fiduciary duty, there are often significant financial repercussions for both parties. This can include higher costs, loss of revenue, fines and long-term economic losses.

 A breach of fiduciary duty can have a major impact on trust and reputation, risking the long-term success of the business. This can affect relationships, sales and public perception. In 2014, 

 highlighted that directors are gatekeepers and breaches can harm the reputation of the board and the corporation.

There are several high-profile fiduciary breaches that have had major impacts on all those involved. Below are two examples of well-documented historical breaches.

Enron was at the center of one of the most infamous fiduciary breaches of all time, which saw the collapse of the organization in 2001. The board was guilty of breaching two of their duties, including:

 The board allowed management to hide debts and inflate earnings.

Board members were guilty of not disclosing personal financial ties to specific ventures.

The breaches led to major financial losses, with share prices plummeting by almost 99%, which resulted in Enron filing for bankruptcy.

In 2015, a major international fashion brand was found to be in breach of its fiduciary duties, which resulted in a lawsuit. These breaches included:

 The board pushed for the sale of the business at a price that would financially impact shareholders.

 It was found that the board made decisions based on self-interest and not the wider business and shareholders.

 The board was accused of making decisions without due diligence and failed to consider other sale offers.

While the sale of the brand eventually went through, the lawsuit was tossed out by the state vice-chancellor. However, reputational damage was felt far and wide.

There are many steps board members can take to minimize their risk of personal liability. Here are 11 of our top tips to ensure your board upholds its fiduciary duties:

Educate themselves on their fiduciary duties:

 Board members should have a clear understanding of their legal obligations. This may involve attending training sessions or seeking guidance from legal counsel. Even experienced directors will need refresher training to ensure they are knowledgeable and adhering to best practices to prevent them from inadvertently failing to fulfill their fiduciary duties.

 Board members should actively participate in board meetings, ask questions about proposed transactions, and maintain a good understanding of the corporation's business and finances. This is a key part of succession planning to ensure continuity in governance and that new directors fully understand fiduciary expectations.

 Board members should avoid becoming too close to management and should be willing to challenge management decisions when necessary.

 Board members should keep detailed minutes of board meetings and document their decision-making process. This can be helpful in defending against claims of breach of fiduciary responsibility.

Disclose conflicts of interest and recuse themselves from decisions when necessary:

 Board members should disclose any potential conflicts of interest to the board and recuse themselves from voting on matters where they have a conflict.

Obtain directors and officers (D&O) insurance:

 can help provide financial protection for board members who are sued for breach of fiduciary duty.

Make an effort to understand governance policies:

 Ignorance should never be an excuse for a breach, so every effort should be made to be familiar with governance policies and procedures.

Undertake regular board self-assessments:

 periodically so the entire board is aligned and has the best interests of the business and shareholders in mind.

A board is less likely to breach its fiduciary duties if all board members are open and honest and find resolutions to conflicts and issues as early as possible.

Every decision must be made with risk prevention and management in mind, so it’s always vital that members err on the side of caution, ask questions and seek information.

Encourage a culture of continuous development:

 Board members should make sure they have up-to-date knowledge of their fiduciary duties and legal requirements to understand the importance of their responsibilities. Governance tools, such as 

, can support boards in complex processes, enhance board efficiency, and helping fulfill fiduciary obligations.

Empower your board to fulfill fiduciary duties efficiently

Understanding and upholding your legal and fiduciary duty is paramount for board members. By actively participating in board activities, asking informed questions, maintaining independence and seeking guidance when necessary, board members can effectively fulfill their fiduciary responsibilities and contribute to the success of the corporation.

Remember, this blog post is intended for informational purposes only and does not constitute legal advice. It is always advisable to consult with legal counsel for specific guidance on your obligations as a board member.

 is key to upholding your board of directors' fiduciary duties. 

Download our board management buyers guide

 to find out how board management software can help your board effectively fulfill its duties.

What resources are available to understand legal and fiduciary duties better?

Numerous resources can help board members deepen their understanding of legal and fiduciary duties. These include:

Fiduciary duty 101: Definitions, breaches, and prevention tips

, Head of Global Corporate Services at Diligent, shared her insights on the company’s strategic vision and the transformative impact it aims to have on the governance community. Diligent’s mission is clear: to modernise governance and support governance professionals in navigating the ever-evolving landscape of regulations and compliance.

The world of governance, risk, and compliance (GRC) is changing rapidly, and Diligent is at the forefront of this transformation. With 25 years of experience in governance, Tracey Brady is leading the charge.

This vision is not just about keeping up with the latest trends but about fundamentally changing the way governance is practiced. By leveraging advanced tools and platforms, Diligent aims to provide governance professionals with the resources they need to stay ahead of the curve.

Integrating GRC tools for seamless compliance

At the heart of Diligent’s strategy is the integration of GRC tools. These unified solutions offer a comprehensive view of governance, risk, and compliance, making it easier for professionals to manage their day-to-day tasks. “We are integrating various tools to offer more powerful and integrated solutions,” Tracey explains.

Emphasising the importance of a cohesive approach to GRC, Tracey notes: “It's about bringing governance, risk, and compliance together in a way that not only integrates tools but offers amazing insight analytics and unifies the whole piece. It's an exciting time to be bringing this to our community.”

AI is a critical component of Diligent’s strategic vision. Tracey states; “AI is such a big area. And what we want to do at Diligent is bring AI to people in a safe way, in a way that's integrated appropriately and really transparent to the user.”

By ensuring that AI is used safely and transparently, Diligent is empowering governance professionals to make more informed decisions. 

AI-driven insights can help identify potential risks

, optimise workflows, and provide actionable recommendations, all while maintaining high standards of transparency and accountability.

Get insights on navigating the global regulatory landscape and protecting your company's integrity with our 2025 global compliance outlook whitepaper. 

Secure your organisations future

Diligent is committed to educating the governance community about the benefits of technology. "I see my role as almost a way of getting education out into the governance community, that wider community, and helping them make sense of it all," Tracey shares.

By providing training, resources, and support, Diligent is ensuring that governance professionals are well-equipped to leverage technology effectively. This educational approach is crucial in a field where the pace of change is rapid, and the stakes are high.

2025 is poised to bring significant challenges and opportunities for GRC professionals globally. As regulatory landscapes evolve, the need for effective technology integration and modern governance practices becomes more critical. Diligent is set to play a pivotal role in this transformation, supporting the governance community with a comprehensive platform that enables streamlined processes, enhanced reporting, and better insights.

Diligent One Platform is the only dedicated GRC solution designed to match the rigours of today’s GRC demands, delivering clarity from complexity to assist corporate leaders and GRC professionals.

Find out how Diligent can enhance your governance practices 

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Fiduciary duty 101: Definitions, breaches, and prevention tips

Embracing the future of governance: Tracey Brady on Diligent's strategic vision

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