What are fiduciaries not allowed to do?

Fiduciaries are prohibited from acting in their own interest at the expense of those they serve, from concealing conflicts, from delegating core duties without proper oversight, and from making decisions without adequate information. These restrictions exist because the fiduciary relationship is built on trust: the beneficiary relies entirely on the fiduciary to act with loyalty, care, and good faith. The questions below address the most important boundaries fiduciaries must observe and the consequences of crossing them.

What actions count as a breach of fiduciary duty?

A breach of fiduciary duty occurs when a fiduciary fails to act in the best interests of the person or entity they are obligated to serve. This includes self-dealing, misuse of confidential information, failure to disclose conflicts of interest, neglect of the duty of care, and any action that prioritises personal gain over the interests of the beneficiary.

The duty of loyalty and the duty of care are the two foundational obligations. Breaching either one constitutes a violation. A director who approves a transaction that benefits them financially without disclosure has breached the duty of loyalty. A board member who votes on a major strategic decision without reviewing the relevant information has breached the duty of care. Both are serious failures with legal and reputational consequences.

Breaches are not always intentional. Negligence, inattention, or a failure to ask the right questions can be just as damaging as deliberate misconduct. This is why governance structures exist: to create conditions in which fiduciaries are held to a consistent standard, and where lapses are identified before they cause lasting harm.

Can a fiduciary benefit personally from their position?

A fiduciary cannot benefit personally from their position unless that benefit is fully disclosed and expressly approved by the beneficiary or the governing body. The prohibition on self-dealing is one of the most fundamental rules in fiduciary law. Any undisclosed personal gain derived from a fiduciary role is presumptively improper.

This does not mean fiduciaries cannot receive compensation for their service. Directors are typically remunerated, and that remuneration is legitimate when it is set through a proper, transparent process. What is prohibited is using the position to secure benefits beyond those agreed, whether through undisclosed fees, preferential access to opportunities, insider information, or transactions that favour the fiduciary’s personal interests.

The line between acceptable benefit and improper gain is not always obvious, which is why disclosure is the critical safeguard. When a fiduciary is uncertain whether a personal interest might be perceived as conflicting, the correct course is always to disclose and recuse, not to proceed and justify after the fact.

What is a fiduciary conflict of interest and when is it prohibited?

A fiduciary conflict of interest arises when a fiduciary has a personal, financial, or professional interest that could influence their judgment in a way that is adverse to the beneficiary. Not every conflict is prohibited, but every conflict must be disclosed. An undisclosed conflict of interest is always a breach of fiduciary duty.

Conflicts become prohibited when they are concealed, when the fiduciary participates in a decision despite the conflict, or when the conflict is so material that no reasonable person could expect impartial judgment. Common examples include a board member voting on a contract with a company in which they hold a financial interest, or a director approving the appointment of a family member to a senior role without disclosure.

Proper governance frameworks require fiduciaries to declare conflicts at the outset of any relevant discussion, to absent themselves from the decision-making process, and to have that recusal formally recorded. This process protects both the organisation and the fiduciary. Boards that lack a robust conflict of interest policy are exposed to significant legal and reputational risk.

Are fiduciaries allowed to delegate their responsibilities?

Fiduciaries may delegate specific tasks and operational responsibilities, but they cannot delegate their core fiduciary obligations. The duty of loyalty and the duty of care remain personal. A fiduciary who delegates a task retains responsibility for selecting a competent person to perform it, providing appropriate oversight, and ensuring the outcome meets the required standard.

In a board context, directors frequently delegate operational matters to management and specialist functions. This is both necessary and appropriate. What cannot be delegated is the board’s ultimate accountability for the decisions that flow from that delegation. A board that approves a strategy without scrutinising management’s recommendations, or that rubber-stamps committee reports without engaging with their substance, has effectively abdicated its fiduciary responsibility.

Effective delegation requires active oversight. Fiduciaries must satisfy themselves that those to whom they delegate have the competence, resources, and authority to act properly. Where delegation fails and harm results, the fiduciary cannot shield themselves by pointing to the delegate. The obligation to supervise is inseparable from the authority to delegate.

What happens when a fiduciary acts on incomplete or ignored information?

When a fiduciary makes a decision without adequate information, or ignores information that was available and relevant, they breach the duty of care. The standard applied is that of a reasonably diligent person with the knowledge and experience appropriate to the role. Decisions made in ignorance of material facts are not protected, even if the fiduciary acted in good faith.

This is particularly significant at board level. Directors are expected to interrogate management reports, ask probing questions, seek independent advice where necessary, and satisfy themselves that the information before them is sufficient to support an informed decision. A board that approves a major acquisition without reviewing due diligence findings, or that proceeds with a CEO appointment without assessing succession readiness, has failed to meet this standard.

The business judgment rule, recognised in many jurisdictions, offers some protection to fiduciaries who make decisions in good faith, on an informed basis, and in the honest belief that the decision serves the organisation’s interests. But this protection applies only where the fiduciary genuinely engaged with the available information. It does not protect wilful ignorance or deliberate avoidance of inconvenient facts.

What are the consequences of violating fiduciary obligations?

The consequences of breaching fiduciary duty range from personal financial liability to disqualification, reputational damage, and in serious cases, criminal prosecution. Courts can order a fiduciary to account for any profit made in breach of duty, to compensate the beneficiary for losses suffered, and to restore any property misappropriated. These remedies are cumulative: a fiduciary may face more than one simultaneously.

Beyond legal consequences, the reputational damage of a fiduciary breach can be severe and lasting. For directors and board members, a finding of breach can end a career in governance. For the organisation, it can erode investor confidence, trigger regulatory intervention, and destabilise leadership at the most critical moment.

Regulatory bodies in most jurisdictions have the authority to disqualify individuals from serving as directors following a proven breach. In cases involving fraud, wilful misconduct, or gross negligence, criminal liability may follow. The severity of the consequence is typically proportionate to the degree of culpability and the harm caused, but even negligent breaches carry significant risk.

Proactive governance is the most effective safeguard. Boards that invest in rigorous self-assessment, clear conflict of interest policies, and honest evaluation of their own performance are far less likely to find themselves in breach. A thorough board effectiveness evaluation is one of the most direct ways to identify governance vulnerabilities before they escalate into fiduciary failures.

How The Board Practice helps boards uphold fiduciary standards

The Board Practice works with boards that take their fiduciary obligations seriously and want to ensure their governance structures are genuinely fit for purpose. Through rigorous, independent evaluation, the firm helps boards identify where fiduciary risk is concentrated and what action is required to address it. Key areas of focus include:

Assessing whether conflict of interest policies are robust, consistently applied, and properly recorded
Evaluating the quality of information flows between management and the board, and whether directors are genuinely equipped to make informed decisions
Identifying gaps in delegation and oversight structures that could expose the board to liability
Examining board dynamics and individual director conduct against the standard of care and loyalty the role demands
Developing forward-looking, multi-year improvement plans in close partnership with the Chair

Fiduciary duty is not a compliance exercise. It is the foundation of trustworthy leadership. If your board is ready for an honest, expert assessment of how well it is meeting that standard, contact The Board Practice to begin the conversation.