What is Board Fiduciary Responsibility

Being a board member is not only an honorable mission, but also a great responsibility. It’s not just about the fact that as part of management, each member needs to be responsible for the entire company, its progress, successes and failures. It is also about the great responsibility that falls on each board member. It is not only a moral obligation, but also a very real responsibility from a legal point of view. We suggest learning more about such type of liability of board members as board fiduciary responsibility.

What is fiduciary responsibility?

According to corporate governance experts, fiduciary responsibility with respect to the board of directors can be defined as a requirement to remain objective and impartial, to remain accountable to the entire company and each of its employees. Simply put, fiduciary responsibility includes the responsibility of board members not only to each other, but to the company as a whole.

Fiduciary responsibility also provides for the financial obligations of board members. In particular, this refers to the requirement that all funds operated by the company as a whole and each board member in particular be accountable, be used only for stipulated expenditure items and be clearly recorded in the accounting records.

Basic fiduciary duties of board members and the importance of fiduciary duty

Board members should have clear fiduciary duties that are designed to keep the company sustainable. Typically, the primary fiduciary duties of board members include:

  • Disposing of corporate assets with regard to their purpose and the principles of transparency, openness, and prudence;
  • Maintaining consistency between their actions and corporate requirements;
  • Compliance with the principles of impartiality when it comes to deciding on the responsibility of one of the members of the board of directors;
  • Compliance with legal, financial and tax liability standards while serving as a board member.

As a rule, the main fiduciary duties of the board members are set out in the contract and articles of association of the company. When drafting such a contract, there may be used forms of documents, which are used in each particular company.

It is difficult to overestimate the role of fiduciary responsibilities of board members. It is designed not only to remind and consolidate the importance of each board member’s responsibility, but also to contain very real penalties that can be used in the event of a breach of these obligations. In addition, such obligations necessarily need to be enshrined in a contract or corporate charter to make them legally enforceable.

Fiduciary duties are also necessary to control the development of the company as a whole and the use of its assets. The fiduciary responsibility provisions of the board of directors should be taken into account when drafting the company’s development strategies, various kinds of contracts and agreements with various counterparties and other types of corporate documentation. If the company does not provide for fiduciary responsibilities for all board members or individual board members, the company may suffer losses.