Three common examples of breaches of fiduciary duty are self-dealing, failure to act with due care, and misuse of confidential information. Each involves a fiduciary — such as a board director — placing personal interests, negligence, or improper conduct above the obligation owed to the organisation they serve. The sections below address the most frequently asked questions about fiduciary duty breaches and how boards can address them.
What happens when a fiduciary duty is breached?
When a fiduciary duty is breached, the organisation harmed may pursue legal remedies against the responsible party. These remedies typically include financial compensation for losses suffered, disgorgement of any profits the fiduciary gained through the breach, and in some cases, injunctive relief to prevent further harm. The severity of the consequences depends on the nature of the breach, the jurisdiction, and the extent of the damage caused.
Beyond legal consequences, a breach of fiduciary duty carries significant reputational and governance consequences. Investor confidence erodes. Regulatory scrutiny intensifies. Board cohesion fractures. For listed companies and state-owned entities, the fallout can extend to public accountability and media exposure, compounding the damage well beyond any courtroom outcome.
It is also worth noting that a breach does not need to result in financial loss to be actionable. In many jurisdictions, the act of placing personal interest above organisational duty is itself sufficient to establish a breach, regardless of whether the organisation ultimately suffered measurable harm.
What are three common examples of breaches of fiduciary duty?
Three of the most common breaches of fiduciary duty are self-dealing, negligent decision-making, and the misuse of confidential information. These categories cover the vast majority of cases that arise in corporate governance contexts, and each reflects a distinct failure in the obligations a director or officer owes to the organisation.
Self-dealing
Self-dealing occurs when a fiduciary enters into a transaction that benefits themselves at the expense of the organisation, without proper disclosure or approval. A director who awards a contract to a company in which they hold a personal financial interest, without declaring that interest to the board, is a clear example. The core failure is the conflict between personal gain and organisational benefit, and the concealment or disregard of that conflict.
Negligent decision-making
Directors are required to make decisions with reasonable care, diligence, and informed judgment. When a board approves a significant acquisition, investment, or strategic commitment without adequate due diligence, without seeking appropriate expert advice, or without genuinely engaging with the material risks, it may be found to have breached its duty of care. The standard is not perfection; it is the level of care a reasonably diligent person in that position would exercise.
Misuse of confidential information
Fiduciaries have access to sensitive organisational information that is not available to the public. Using that information for personal advantage, sharing it with competitors, or disclosing it to third parties without authorisation constitutes a serious breach. In listed companies, this can also constitute insider trading, which carries criminal as well as civil liability.
What is the difference between a breach of duty of loyalty and duty of care?
The duty of loyalty requires a fiduciary to act in the best interests of the organisation, free from conflicts of interest and personal gain. The duty of care requires them to act with sufficient diligence, informed judgment, and competence. A breach of loyalty is fundamentally about motivation; a breach of care is fundamentally about conduct and process.
In practice, the distinction matters because the two duties apply different standards of scrutiny. Courts examining a loyalty breach will look at whether the fiduciary had a conflicting interest and whether they prioritised it. Courts examining a care breach will assess whether the decision-making process was reasonable, whether relevant information was considered, and whether appropriate advice was sought.
The two can overlap. A director who rushes a decision to benefit themselves may breach both duties simultaneously. However, they are legally distinct obligations, and understanding that distinction is important when assessing liability and designing governance safeguards to prevent both types of failure.
Who can bring a claim for breach of fiduciary duty?
A claim for breach of fiduciary duty is typically brought by the organisation itself, acting through its board or authorised representatives. In corporate contexts, this means the company as a legal entity is the primary claimant. Shareholders may also bring a derivative action on behalf of the company, particularly when the board itself is implicated in the breach and unlikely to pursue the claim independently.
Regulators, liquidators, and in certain jurisdictions, creditors may also have standing to bring or support claims, particularly in cases involving insolvency or systemic governance failure. The specific rules governing who may bring a claim vary by jurisdiction, and legal advice specific to the relevant legal framework is always required.
What is consistent across most jurisdictions is that the right to bring a claim exists to protect the organisation and its stakeholders, not to serve individual grievances. This is why governance structures that enable early identification of conflicts and concerns are so important; they create the conditions for issues to be addressed internally before they escalate to litigation.
How can boards prevent fiduciary duty breaches?
Boards prevent fiduciary duty breaches through a combination of clear governance structures, rigorous conflict-of-interest management, ongoing director education, and honest self-assessment. Prevention is far more effective than remedy. By the time a breach reaches litigation, the damage to the organisation, its leadership, and its stakeholders is already substantial.
The most effective preventive measures include:
- Formal conflict-of-interest policies that require directors to declare interests proactively and recuse themselves from relevant decisions
- Structured board decision-making processes that ensure material decisions are made with adequate information, appropriate expert input, and documented deliberation
- Clear role boundaries between the board and executive management, reducing the risk of directors overstepping into operational territory or being co-opted by management interests
- Regular board effectiveness evaluations that surface governance weaknesses, relationship tensions, and alignment gaps before they become material risks
- A culture of candour in the boardroom, where directors feel able to raise concerns, challenge decisions, and escalate issues without fear of reprisal
Governance failure rarely announces itself. It accumulates through small compromises, unchallenged assumptions, and relationships that blur professional boundaries. The most resilient boards are those that treat self-examination as a discipline, not an event.
How The Board Practice helps boards manage fiduciary risk
Fiduciary duty breaches are rarely the result of deliberate misconduct alone. More often, they emerge from governance structures that have not kept pace with organisational complexity, board dynamics that suppress challenge, or a lack of clarity about roles and responsibilities. Addressing these conditions requires honest, expert external assessment.
The Board Practice works directly with boards to identify and address the conditions that give rise to fiduciary risk, through its board effectiveness evaluation methodology. This includes:
- Structured one-on-one interviews and tailored questionnaires that surface governance gaps and relationship dynamics
- Analysis of decision-making processes and the Corporate Governance framework to identify where fiduciary obligations may be inadequately supported
- Forward-looking development plans, typically spanning two to three years, that address identified risks in close partnership with the Chair
- Honest, unbiased feedback delivered with the candour that boards need and rarely receive from internal sources
If your board is navigating governance complexity or seeking greater confidence in its fiduciary foundations, get in touch with The Board Practice to discuss how an objective external evaluation can strengthen your board’s effectiveness and long-term resilience.
