Fiduciaries are prohibited from acting in their own interest at the expense of those they serve, delegating core duties without authorisation, concealing conflicts of interest, and using their position to secure personal gain. These prohibitions exist because fiduciary relationships are built on trust: the fiduciary holds power or information that the beneficiary cannot easily monitor or protect. The questions below unpack the specific boundaries fiduciaries must not cross and what happens when they do.
What actions count as a breach of fiduciary duty?
A breach of fiduciary duty occurs when a person in a position of trust acts in a way that is inconsistent with the interests of those they are obligated to serve. Breaches typically fall into one of three categories: self-dealing, disloyalty, or negligence. In each case, the fiduciary has placed their own interests, or those of a third party, above the legitimate interests of the beneficiary.
Common examples of breach include making unauthorised personal profit from a fiduciary role, withholding material information, acting beyond the scope of granted authority, and failing to exercise the standard of care expected of a reasonably prudent person in the same position. A breach does not require deliberate wrongdoing. Negligent inaction, poor judgment, and wilful blindness can all constitute a violation, particularly when the fiduciary had access to information that made the risk foreseeable.
The legal and reputational consequences of a breach are substantial. Courts routinely hold fiduciaries personally liable for losses arising from their conduct, and in governance contexts, a single breach can undermine the credibility of an entire board.
Can a fiduciary benefit personally from their position?
A fiduciary cannot benefit personally from their position unless such benefit is fully disclosed and expressly approved by those they serve. The no-profit rule is one of the most fundamental principles in fiduciary law: a fiduciary must not make a secret profit, receive a commission, or acquire any advantage by virtue of their position without informed consent from the beneficiary.
This prohibition applies even when the fiduciary believes the transaction is fair or that the beneficiary has not been harmed. The law does not require proof of actual loss. The mere fact that an undisclosed benefit was obtained is sufficient to constitute a breach. This strict standard exists because fiduciaries are trusted with privileged access to information, relationships, and decision-making authority that others cannot easily scrutinise.
Where personal benefit is permitted, it must be subject to rigorous transparency. In a board context, this means formal declaration of any interest, recusal from relevant decisions, and documented approval by independent parties. Anything less creates legal exposure and erodes the trust that governance depends on.
What is a conflict of interest and why can’t fiduciaries ignore it?
A conflict of interest arises when a fiduciary’s personal interests, or their duties to a third party, compete with their obligation to act in the best interests of the beneficiary. Fiduciaries cannot ignore conflicts of interest because doing so allows self-interest to corrupt decision-making, even when the fiduciary believes they are acting objectively.
The danger is not only in deliberate bias. Research into human decision-making consistently shows that individuals are poor judges of their own impartiality. A fiduciary who stands to gain from a particular outcome will often unconsciously favour it, even while believing they are being fair. This is precisely why disclosure and recusal are required as structural safeguards, not optional courtesies.
Ignoring a conflict of interest, even one that does not ultimately affect the outcome, is itself a breach of fiduciary duty. The obligation is to disclose and manage the conflict, not to privately assess whether it matters. For board directors, this duty is reinforced by corporate law, listing requirements, and governance codes across most jurisdictions. A director who sits on the board of a competing company, holds a financial stake in a supplier, or has a family relationship with a key counterparty must declare that interest before any related discussion or vote.
Are fiduciaries allowed to delegate their responsibilities?
Fiduciaries may delegate certain tasks, but they cannot delegate their core duties or their accountability for how those duties are performed. Delegation is permitted where it is reasonable, authorised, and subject to appropriate oversight. What a fiduciary cannot do is use delegation as a mechanism to avoid responsibility or to distance themselves from decisions they were obligated to make personally.
In practice, this means a fiduciary who delegates a function remains responsible for selecting a competent delegate, providing adequate instruction, and monitoring performance. If the delegate acts improperly and the fiduciary failed to exercise reasonable oversight, the fiduciary may still be held liable. The duty to supervise survives the act of delegation.
For board directors, the boundaries of delegation are shaped by company law and the board’s own governance documents. Boards may delegate operational authority to management and specific matters to committees, but certain decisions, including approval of financial statements, major transactions, and strategic direction, typically cannot be delegated and must be taken by the full board. Directors who absent themselves from these decisions, or who rubber-stamp committee recommendations without independent scrutiny, risk breaching their fiduciary duty of care.
What happens when a fiduciary violates their duties?
When a fiduciary violates their duties, they become personally liable for the consequences of that breach. Depending on the jurisdiction and the nature of the violation, remedies may include compensation for losses suffered by the beneficiary, disgorgement of any profit the fiduciary obtained, rescission of transactions entered into improperly, and, in serious cases, criminal prosecution.
Civil liability is the most common outcome. Courts can order a fiduciary to repay losses caused by their breach, even where those losses were not the result of deliberate wrongdoing. In cases of self-dealing or fraud, courts may additionally require the fiduciary to surrender any personal gain, regardless of whether the beneficiary suffered a corresponding loss.
Beyond legal consequences, the reputational damage is often lasting. A director found to have breached their fiduciary duty may be disqualified from serving on boards, lose professional standing, and face exclusion from future governance roles. For organisations, the exposure of a fiduciary breach can damage investor confidence, trigger regulatory scrutiny, and destabilise leadership at precisely the moment when stability is most needed.
How do fiduciary prohibitions apply specifically to board directors?
Board directors are fiduciaries of the company and its shareholders. As such, they are prohibited from acting in their personal interest at the company’s expense, from using confidential information for private gain, from competing with the company without disclosure, and from approving transactions in which they have an undisclosed interest. These prohibitions apply to executive and non-executive directors alike.
Directors carry three core fiduciary duties: the duty of loyalty, which requires them to act in the company’s best interests; the duty of care, which requires them to exercise informed and diligent judgment; and the duty to act within their authority, which limits them to decisions within the scope of their role. A director who votes on a matter in which they hold a personal financial interest, without declaring that interest, breaches the duty of loyalty. A director who approves a major acquisition without reviewing the relevant documentation breaches the duty of care.
These obligations are not theoretical. They are enforced through company law, securities regulation, and the governance codes applicable in each jurisdiction. In 2026, regulators in multiple markets have sharpened their scrutiny of board-level conduct, and institutional investors increasingly expect evidence that boards are actively managing conflicts and upholding governance standards. A board that treats fiduciary obligations as a compliance formality, rather than a genuine standard of conduct, is exposed to both legal and strategic risk.
Understanding where fiduciary duty applies in practice is one thing. Ensuring that a board consistently meets that standard, under pressure, across complex decisions, is another matter entirely. A structured board effectiveness evaluation can identify where fiduciary gaps exist before they become liabilities.
How The Board Practice helps boards uphold fiduciary standards
The Board Practice works with boards to ensure that fiduciary obligations are embedded in how the board actually operates, not merely acknowledged in policy documents. Through rigorous, independent evaluation, the firm identifies the structural and behavioural conditions that put fiduciary duty at risk.
- Independent assessment of how conflicts of interest are declared, managed, and documented in practice
- Evaluation of decision-making processes to identify where the duty of care is not being met
- Analysis of delegation structures to confirm that accountability is retained where it should be
- Forward-looking development planning that addresses governance gaps before they become legal or reputational exposures
- Candid, confidential counsel for Chairs and boards navigating specific fiduciary tensions
Every engagement is tailored to the specific dynamics of the board and the organisation it governs. If your board is seeking an honest, expert assessment of how well it is meeting its fiduciary responsibilities, contact The Board Practice to begin the conversation.
