Fiduciary Duty Essay

Good Essays
Fiduciary duty refers to a legal obligation to act purely in the interests of another party. The party that owes the duty is known as the fiduciary, while the party to whom the duty is owed is known as the principal. The fiduciary is not allowed to benefit from this relationship unless the principal expressly consents to it. In addition, the fiduciary should not have any conflict of interest with the principal. Furthermore, in cases where the fiduciary has several principals, the fiduciary should make sure that is there is no conflict of interest between the principals (Cassidy, 2006, pp. 219). The relationship between a director and a company is an example of a fiduciary duty. This paper examines the extent to which fiduciary duties can prevent directors from pursuing their own interests in a company.
Directors have various duties to the company that prevent the directors from pursuing their own interests. The duty of loyalty is the most important fiduciary duty that acts as a defence for the company against unscrupulous directors. It is intended to address the issue of conflict of interest between the directors and the firm. Under this duty, the directors of a company are expected to act in the company’s
…show more content…
In this case, the directors of a company arrived at the share price for a leveraged buy-out merger without consulting the Company’s and independent financial experts. The directors also failed to determine the company’s total value before the merger. The directors of the company were found to have been grossly negligent in the manner in which they handled the merger. Even though the share price arrived by the directors proved to be profitable for the company, the court maintained that the directors had failed to exercise their duty of care because they had failed to consult any financial experts when arriving at their decision (Macey,

Related Documents

  • Decent Essays

    A parent company might face in obligation to subsidiary's employees based on the parent company itself that have duty of care to the employee under the law of negligence. This duty might emerge without an immediate business relationship between the controlling company and the employee and is well on the way to appear where the controlling company practices a high level of control throughout the everyday exercises of its auxiliary out of which the tort claim emerged. This requires both foreseeability and a relationship of vicinity between the parties as for both the significant class of act or oversight and the applicable sort of harm. According to CSR Ltd v Wren A parent company is liable over subsidary's tort if it is held that the parent owes a duty of care to the victims of the subsidiary's negligence. Otherwise, company might have liability to subsidiary's employee towards duty of diligence if it has a high level of control over the subsidiary's activities CSR Ltd v Young.…

    • 1623 Words
    • 7 Pages
    Decent Essays
  • Decent Essays

    It requires the CPAs to be independent both in mind and in appearance. Independence of mind means that the CPA must be independent to make judgements. Independence in appearance requires the CPA to avoid informed third party knowing relevant and confidential information when performing attestation procedures as it is possible that the third party may conclude that the CPA and the team has been compromised. However, the independence for either CPA or the CPA firm will be impaired in a certain…

    • 1021 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    However, whether those duties are effective in legal practice is a debate. In my opinion, the duty to act with reasonable care and diligence and the duty to prevent insolvent trading have not helped to prevent companies going into insolvency. The reasons are outline below. Explanation Directors have duties to ensure best interests of the company as whole including creditors. Under Corporations Acts, directors are required to act with reasonable care and diligence and prevent insolvent trading.…

    • 852 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    However, the external auditors didn’t commit to it, and failed to keep the ethical environment and its corporate governance in Halliburton. Menendez, the whistleblower wasn’t included in the important meeting that Halliburton arranged. Throughout the meeting, KPMG was present without the employee Menendez. This meeting held the fact that there would be an accounting topic of a joint venture. However, SEC would find reasons in awkward situations considering KPMG and why they shouldn’t have had been in the RTA meeting consulted by Haliburton.…

    • 908 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    As a result, the auditors ensure that they determine the reasonability and integrity of the management team during review of their assumptions and validation of accounting estimates. Alternatively, there are criminal and civil liabilities plus penalties for those corporations and their auditors who fail to act accordingly. The forms of punishments are economic, legal, and political costs. The second factor is the client’s preferences since the auditor’s wealth is dependent on their customers (Allen, Ramanna, and Roychowdhury 2014). The company’s executives make decisions to keep or fire the auditors, and therefore, the auditors firm may act in an unethical manner to maintain the client as a customer.…

    • 997 Words
    • 4 Pages
    Decent Essays
  • Decent Essays

    Also, if a company is relying on a specific program that generates their income and then an employee decides to tell the company’s competitor their program specifics, those actions would significantly hurt the company’s profit margin. When either of these examples arise within a company, the company should have strict procedures in place before the situation escalades. A risk management system would allow the company to think about these scenarios and have a plan in place to safe guard the company from losing profits. Therefore, it is important that the company understand the SOX Act and incorporate its law into their risk management plan so that the entire company fully understands how the company will react in these situations, but also the punishment that is handed down for…

    • 1303 Words
    • 6 Pages
    Decent Essays
  • Decent Essays

    The internal management principle; which provides that where a company is acting within its powers, the courts will not interfere in matters of internal management, unless the company itself commences proceedings. This principle mainly deals with the long-established reluctance to become involved in the internal affairs of…

    • 1888 Words
    • 8 Pages
    Decent Essays
  • Decent Essays

    Ethics play an important role to the success of a manager as it helps their team to be able to do the right thing .Ethical issues arise in different areas like advertising, sourcing of raw materials, pay scales, safety, employee privacy, product pricing and communication. Ethical behavior obviously affects the manager in their approach to conducting business. This is so since subordinates will always look up to management on how to conduct themselves. Managers have to obviously lead by example in upholding those values especially in regions where there are codes of ethics expected from those institutions. This is the case in the USA with the Sarbanes-Oxley act which sought to reform the countries corporate governance practices in public corporations.…

    • 1205 Words
    • 5 Pages
    Decent Essays
  • Decent Essays

    In this instance, the issue is whether the directors of the company XYZ Co. Ltd are responsible for the breach of the insolvent trading and is there any defence available to them under Corporation act. Section 588 G says that, Directors have a statuary duty to prevent insolvent trading of a company. See Austin & Black’s Annotations to the Corporations Act . The duty of the directors are breached when these four conditions are seen firstly, person is a director of the company or someone he/she is not the director of the company but still act a director by taking part in the duties which are assigned to the directors like shadow directors who are retired directors but still taking part in the meeting and…

    • 709 Words
    • 3 Pages
    Decent Essays
  • Decent Essays

    The company did not gain the trust of the employees before deciding to announce the layoffs, thus leading Rollins to not defend Lauder when the employees were asking the questions of him. Lauder did not offer any transparency to the employees or senior management of the organization. It seems that only three people in the organization knew what was taking place and that was Jim Bradley, Alberto Marquez and Andrew Laude; no one else in the organization seemed to have mattered to them. The procedures by which the organization chose to take the steps were in secret. Lauder had no clear way to access where the layoff the first round of layoffs should have taken…

    • 1873 Words
    • 7 Pages
    Decent Essays