Fiduciaries are prohibited from acting in their own interest at the expense of those they serve, using their position to gain personal advantage, or allowing conflicts of interest to influence their decisions without proper disclosure. These prohibitions exist because a fiduciary relationship is built on trust — the beneficiary depends entirely on the fiduciary to act with loyalty and care. The questions below address the most important boundaries that define this duty in practice.
What actions are explicitly prohibited for a fiduciary?
A fiduciary is explicitly prohibited from self-dealing, misappropriating assets, withholding material information, and acting outside the scope of their authority. These are not merely ethical guidelines — they are legally enforceable obligations. Any action that subordinates the interests of the beneficiary to the fiduciary’s own preferences, relationships, or financial gain constitutes a breach.
The core prohibited actions typically include:
- Self-dealing: Entering into transactions that benefit the fiduciary personally, even when the terms appear commercially reasonable
- Misuse of confidential information: Using privileged knowledge gained through the fiduciary role for personal or third-party advantage
- Unauthorised delegation: Transferring fiduciary responsibilities to others without proper authority or oversight
- Negligent decision-making: Failing to apply the standard of care expected of a reasonably prudent person in the same position
- Concealment: Withholding information that the beneficiary has a right to know, particularly where it affects their interests
The breadth of these prohibitions reflects the fundamental nature of fiduciary duty: the fiduciary must always act in the best interests of the person or entity they represent, and any deviation from that standard is treated seriously under law.
What counts as a conflict of interest for a fiduciary?
A conflict of interest arises when a fiduciary has a personal, financial, or relational interest that could influence — or appear to influence — their decision-making in a way that is not aligned with the beneficiary’s best interests. The test is not whether the fiduciary actually acted improperly, but whether a conflict existed that could have compromised their judgment.
Common examples include:
- A director awarding a contract to a company in which they hold shares
- A board member participating in a vote on a matter where a family member stands to benefit
- A trustee investing assets in a business they own or manage
- A fiduciary receiving undisclosed gifts or payments from a third party with interests before the board
Importantly, a conflict of interest does not automatically constitute a breach. In most governance frameworks, the obligation is to disclose the conflict promptly and fully, and then to recuse oneself from related deliberations and decisions. The breach occurs when the conflict is concealed, minimised, or when the fiduciary continues to participate despite the conflict being known.
At board level, where fiduciary obligations are particularly stringent, the discipline required to identify and disclose conflicts — even when they feel minor or technical — is a mark of genuine governance maturity.
Can a fiduciary make decisions that benefit themselves?
A fiduciary can benefit from a decision only when that benefit is fully disclosed, properly approved by the relevant parties, and does not come at the expense of the beneficiary’s interests. The prohibition is not on incidental benefit — it is on undisclosed or preferential self-interest that distorts decision-making.
In a corporate governance context, this means a director may receive remuneration, approved benefits, or participate in arrangements that are sanctioned through the proper governance process. What is prohibited is using one’s fiduciary position to secure advantages that have not been subjected to that scrutiny.
The standard applied by courts and regulators is often framed as the “no conflict” and “no profit” rules. Under these principles, a fiduciary must not place themselves in a position where their duty and their interest conflict, and must not make a profit from their position without proper authorisation. These are strict rules — good intentions are not a defence if the procedural safeguards were not followed.
What happens when a fiduciary breaches their duty?
When a fiduciary breaches their duty, they may face personal liability for any loss caused to the beneficiary, be required to account for any profits made, and in serious cases face civil litigation or regulatory sanction. The consequences are designed to restore the beneficiary to the position they would have been in had the breach not occurred.
Remedies available to the aggrieved party typically include:
- Compensation: The fiduciary is required to make good any financial loss resulting from the breach
- Account of profits: Any gain the fiduciary made through the breach must be surrendered, regardless of whether the beneficiary suffered a direct financial loss
- Rescission: Transactions entered into in breach of fiduciary duty may be unwound
- Injunctive relief: Courts may intervene to prevent ongoing or anticipated breaches
- Removal from office: In a corporate context, a director in breach may be removed from the board
Beyond legal consequences, a breach of fiduciary duty carries significant reputational damage — both for the individual and for the organisation. For boards in particular, a high-profile breach can erode investor confidence, attract regulatory scrutiny, and destabilise leadership at precisely the moment when coherence is most needed.
How is a fiduciary’s duty different from a director’s general obligations?
A director’s general obligations encompass a range of duties — including compliance with company law, oversight of financial reporting, and strategic stewardship — while fiduciary duty refers specifically to the obligation of loyalty and undivided commitment to the interests of the company. Fiduciary duty is a subset of a director’s broader responsibilities, but it is the most legally demanding of them.
General obligations are often codified in statute and company policy. Fiduciary duties, by contrast, are rooted in equity and common law, and they impose a higher standard precisely because of the trust and discretion involved. A director who makes a poor strategic decision in good faith may not be in breach of their general duties; a director who makes the same decision while concealing a personal interest almost certainly is in breach of their fiduciary duty.
The distinction matters in practice. Boards that conflate general governance obligations with fiduciary duty risk underestimating the seriousness of loyalty-related issues, or conversely, treating every governance shortcoming as a potential breach of trust. Understanding where the fiduciary threshold lies — and what triggers it — is essential for any director taking their role seriously.
Who can hold a fiduciary accountable for prohibited conduct?
A fiduciary can be held accountable by the beneficiary of the duty, by regulatory authorities, by shareholders in a corporate context, and in some circumstances by other board members or the company itself. The right to bring a claim generally rests with whoever the fiduciary duty was owed to.
In a corporate governance setting, accountability mechanisms include:
- Shareholders: In listed companies, shareholders may bring derivative actions on behalf of the company against directors who have breached their fiduciary duty
- Regulators: Regulatory bodies overseeing financial markets, public entities, or specific sectors may investigate and sanction fiduciaries who breach their obligations
- The company itself: The board, acting collectively, or a duly appointed committee may pursue claims against individual directors
- Courts: Beneficiaries may seek judicial remedies directly through civil litigation
The accountability landscape has become more rigorous in recent years, with regulators across multiple jurisdictions taking an increasingly active interest in board-level conduct. For organisations operating across borders, this means fiduciary accountability is not a single-jurisdiction question — it may be subject to multiple legal frameworks simultaneously.
Effective governance structures anticipate this complexity. When boards have clear processes for identifying conflicts, escalating concerns, and documenting decision-making, accountability becomes a function of the governance system itself — not merely a remedy applied after something has gone wrong.
How The Board Practice helps boards navigate fiduciary obligations
Understanding what fiduciaries are not allowed to do is only part of the picture. Embedding that understanding into the way a board actually operates — its culture, its decision-making processes, its relationships — is where governance becomes genuinely robust. The Board Practice works with boards to do precisely that, through rigorous, forward-looking board effectiveness evaluations that surface the issues most likely to create fiduciary risk before they become problems.
- Identifying undisclosed conflicts and structural vulnerabilities in board decision-making
- Assessing whether the board’s culture supports candid disclosure and appropriate challenge
- Reviewing governance documentation and committee structures for alignment with fiduciary obligations
- Providing frank, independent counsel to the Chair on matters of loyalty, independence, and role clarity
- Developing multi-year improvement plans that strengthen the board’s governance standing with regulators and investors
Fiduciary duty is not a compliance checkbox — it is the foundation of the trust that makes effective board leadership possible. If your board would benefit from an objective assessment of how well it is meeting that standard, speak with The Board Practice to explore what a tailored engagement would involve.
