Fiduciary Relationship

In a recent seminar conducted by the Fort Worth Chapter of the Texas Society of CPAs, Darren Moore, an attorney for Bourland, Wall & Wenzel, P.C. defined a fiduciary relationship as:
1. A relationship of trust and confidence whereby a party is bound to act for the benefit of another
2. Existing as a matter of law
3. Grounded in equity and therefore application of duties varies depending on the context.

Directors serving on the board of directors and officers are governed by statutory law and case law which dictate three basic fiduciary duties:
1. Duty of care
2. Duty of loyalty
3. Duty of obedience

These fiduciary responsibilities provide organizations the framework of strong governance.

How do you define “care”, “loyalty”,” obedience”? Continue reading…
1. Duty of care – acts in good faith, uses the care that a person of ordinary prudence would use in same or similar circumstances (reasonable skills) and makes decision reasonably believed to be in the best interest of the corporation.
2. Duty of loyalty – exercises an “extreme measure of candor, unselfishness and good faith”, doesn’t usurp corporate opportunities, transactions with organization (if they exist) are fair, and maintains appropriate confidentiality.
3. Duty of obedience – remains faithful to and pursues the goals of the organization; follows the governing documents of the organization, laws applicable to the organization and restrictions imposed by donors; ensures charitable assets are not diverted to non-charitable uses; liability requires personal participation or actual knowledge of the wrongful act.

Need help in determining “how” these duties look in a tax-exempt organization? Contact me.