How do you know if someone has a fiduciary duty?

You can identify a fiduciary duty by examining the nature of the relationship between two parties: if one party is entrusted with authority, assets, or decision-making power on behalf of another, and that other party is placed in a position of dependency or vulnerability, a fiduciary duty almost certainly exists. The relationship is defined not by a label, but by its substance. The sections below address the most important questions surrounding fiduciary duty, from who holds it to what happens when it is breached.

Who is legally considered a fiduciary?

A fiduciary is any person or entity that holds a position of trust and authority over another party’s interests. The law recognises this relationship when one party relies on another to act in their best interests, and that reliance is reasonable given the nature of the arrangement. Common examples include trustees, executors, attorneys acting under power of attorney, financial advisors, and company directors.

In the corporate context, board members are among the most prominent fiduciaries. They are entrusted with steering an organisation on behalf of shareholders, beneficiaries, or the public, depending on the entity type. This trust is not symbolic. It carries enforceable legal obligations, and courts in most jurisdictions will examine the substance of a relationship, not merely its title, to determine whether fiduciary obligations apply.

What are the core duties of a fiduciary?

The core duties of a fiduciary are the duty of loyalty and the duty of care. The duty of loyalty requires the fiduciary to act in the best interests of the principal, avoiding conflicts of interest and never using their position for personal gain. The duty of care requires them to act with the diligence, skill, and attention that a reasonably prudent person would apply in the same circumstances.

Beyond these two foundations, fiduciaries typically carry additional obligations:

Duty of obedience: Acting within the scope of authority granted and adhering to the governing documents or mandate.
Duty of confidentiality: Protecting sensitive information obtained through the fiduciary relationship.
Duty of disclosure: Proactively sharing material information the principal needs to make informed decisions.
Duty of prudence: Making decisions with long-term consequences in mind, not short-term convenience.

For board directors specifically, these duties translate into active, engaged governance. A director who attends meetings without meaningful preparation, or who defers entirely to management without independent scrutiny, may fall short of the standard the duty of care demands.

What’s the difference between a fiduciary duty and a contractual obligation?

A fiduciary duty arises from the nature of a relationship, not from a written agreement. A contractual obligation is defined by the terms two parties negotiate and agree to. The key distinction is that fiduciary duties are imposed by law based on the character of the relationship, while contractual duties are self-imposed through mutual consent.

This distinction matters in practice. A contract can be drafted narrowly, limiting what one party owes the other. A fiduciary duty cannot be contracted away entirely. Even if a director’s service agreement is silent on a particular matter, the law may still hold them to a fiduciary standard if their role places them in a position of trust over the organisation’s affairs.

Another significant difference lies in remedies. Breach of contract typically results in financial damages. Breach of fiduciary duty can lead to additional consequences, including disgorgement of profits, injunctive relief, or removal from the fiduciary role, because the law treats the violation of trust as a distinct and serious wrong.

How do you know if a fiduciary relationship exists?

A fiduciary relationship exists when one party places trust and confidence in another, who accepts that trust and exercises discretion over the first party’s interests. Courts typically look at three indicators: whether one party has authority over another’s affairs, whether the other party is in a position of dependence or vulnerability, and whether the accepting party has undertaken to act in the other’s interests.

In practice, the following circumstances are strong indicators of a fiduciary relationship:

One party holds decision-making authority over assets, strategy, or resources belonging to another.
The dependent party cannot reasonably protect their own interests without relying on the other.
There is an expectation, explicit or implied, that the authority will be exercised with loyalty and care.
The relationship involves a meaningful imbalance of information or power.

In the boardroom, this analysis is rarely in doubt. Directors are appointed precisely because the organisation and its stakeholders cannot manage every governance decision themselves. The moment a director accepts their appointment, the fiduciary relationship is established.

What happens when a fiduciary duty is breached?

When a fiduciary duty is breached, the affected party can seek legal redress through civil proceedings. Depending on the jurisdiction and the nature of the breach, consequences can include financial compensation for losses caused, disgorgement of any gains the fiduciary made improperly, removal from the fiduciary position, and in serious cases involving fraud or wilful misconduct, criminal liability.

Beyond the legal dimension, a breach of fiduciary duty causes lasting reputational damage. For board directors, a finding of breach signals a failure of the most fundamental governance obligation. Shareholders, regulators, and institutional investors take such findings seriously, and the consequences for an organisation’s credibility can extend well beyond any court order.

It is also worth noting that a breach does not require dishonest intent. A director who fails to apply adequate care, who ignores a material conflict of interest, or who simply does not engage with sufficient diligence can be found in breach, even where no personal gain was involved. Good intentions are not a defence against a failure to meet the required standard.

Do all board members have the same fiduciary duty?

All board members carry the same foundational fiduciary duties of loyalty and care. However, the standard applied to each director is not identical. Courts and regulators assess each director’s conduct in light of their individual knowledge, skills, and experience. A director with financial expertise is held to a higher standard on financial matters than one without that background.

Executive directors, who are also employees of the organisation, carry additional duties that flow from their operational roles. Non-executive directors are generally expected to provide independent oversight and challenge, and while they are not involved in day-to-day management, they remain fully subject to fiduciary obligations in their governance function.

The composition of a board, and whether each member genuinely understands and fulfils their fiduciary role, is a substantive governance question. A board effectiveness evaluation can surface where individual directors may be unclear on the scope of their duties, or where the board as a collective is not operating at the level its responsibilities demand. Clarity on fiduciary duty is not a compliance formality; it is a prerequisite for effective governance.

How The Board Practice helps boards understand and fulfil fiduciary duty

Many governance failures do not begin with bad intentions. They begin with ambiguity about what is actually required of each director, and a board culture that does not create the conditions for rigorous, independent oversight. The Board Practice works directly with boards to address this at its source.

Structured one-on-one interviews and tailored assessments that reveal where individual directors may be unclear on the scope of their fiduciary obligations.
Forward-looking analysis that identifies governance gaps before they become liabilities.
Candid, unbiased feedback delivered in close partnership with the Chair, with a focus on long-term board performance rather than retrospective compliance.
Multi-year development plans that embed fiduciary clarity and accountability into the board’s ongoing work.

If your board is navigating questions about governance standards, director obligations, or overall effectiveness, speak with The Board Practice to explore how a tailored evaluation can strengthen the foundation your board operates from.