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Most people have probably heard the terms “fiduciary” and “board of directors” at some time or another.  However, few realize the connection between the two.

So what exactly is a “Board of Directors (BOD)” and how does “fiduciary” fit into this picture?  The BOD is more than just a group of people brought together by a corporation and/or organization for the sake of show.  Rather, each director on a BOD has certain responsibilities.

Each and every director who is a part of a BOD has what is known as a “fiduciary relationship” i.e. a relationship of honesty and trust, with the corporation and its shareholders, and/or an organization.  The law has further defined this relationship via two principles: the duty of care and the duty of loyalty.

The duty of care is an established legal theory that requires each director to always act in the best interests of the corporation and it shareholders, and/or the organization.  Specifically, each director is required to always act reasonably, and in good faith.

Similarly, the duty of loyalty requires that all directors “put the corporation or organization first” by never acting to profit or benefit at the expense of the corporation or organization.  Essentially, directors should not act to compete with the corporation or organization, directors should not take advantage of any opportunities offered to or from the corporation or organization, and directors should never benefit at the corporation or organization’s expense.

Do not be mistaken if you are thinking that these are just fancy legal principles that are never put to good use in court.  There have been many lawsuits over directors breaching their duty of care and/or duty of loyalty.

What Should You Do?

If you help run a corporation and/or organization, take a moment to evaluate the members of your BOD.  If you feel that a certain individual is not carrying out his or her responsibilities, get help!

For those of you on the BOD of a corporation and/or organization, take a moment to evaluate your conduct.  If you are too busy to do so, make some time –it’s always important to comply with the law!

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