Breaching the Fiduciary Duty

One of the things that tend to get overlooked in tough economic times is the fiduciary duty that is owed to another. Often the excuse is that if it wasn’t for the current economic situation this wouldn’t have happened. The problem is that both sides will make this same excuse. So when can we actually look to the economy as being at fault and when to we look to someone specifically?

The fiduciary duty is when an individual has placed the utmost trust and confidence in another to manage and protect property or money. What does that mean? Commonly this duty arises in a corporate setting or in the administration of a trust. Corporate directors and officers owe a duty to the shareholders to operate the business appropriately. Also, a trustee owes the beneficiaries of a trust the duty to handle the trust in the appropriate manner. These are not the only situations that a fiduciary relationship arises but they are the most common and can give us a guide post to look to other relationships in order to identify if the fiduciary duty arises.

Our original question was when can we blame the economy and when is someone specifically at fault, so how do we answer this. Very carefully. Obviously is an individual is doing something blatantly wrong, like embezzling money or usurping corporate opportunities, then a breach of the fiduciary duty should be pursued. But when it comes to failing to properly invest money this is a much trickier question.

In a struggling economy there is one thing fiduciaries must do and that is not be lazy. Someone that is placed in the situation should always be able to point out how much work they put in and despite their best efforts the outcome still was unfavorable. It is when we look at a person that is sitting idly by while the property or money they are in charge of protecting is swallowed up by another.

This line is a fine one to walk. But the officer that carefully weighs all his options and makes what he believes is the best possible decision will usually be protected where as the one that simply follows his gut because it would take too long to read a memo on the subject might not be as protected.