Fiduciary

A fiduciary is a person who has been entrusted with a responsibility to act loyally for the benefit of another person  – called a beneficiary – in managing an asset or pursuing a project. The term “fiduciary” occurs most commonly as a description of specific kinds of duties, obligations, or responsibilities. Under the law, fiduciary duty is understood to include both a duty of loyalty (to act in the beneficiary’s interests and not to subordinate the beneficiary’s interests to others’ interests) and a duty of care (to make reasonable and diligent efforts to advance the beneficiary’s interests).

Everyday examples of fiduciary relationships include the physician-patient and attorney-client relationships. Physicians are fiduciaries for their patients with regard to maintaining the patient’s health. Attorneys are fiduciaries for their clients with regard to protecting the client’s legal interests.

Fiduciary relationships appear frequently in business. As just one example, a full-service stockbroker is a fiduciary for her client with regard to managing the client’s investment portfolio. The stockbroker has a duty to pursue trades in the client’s interests and not to subordinate the client’s interests to other interests (including the stockbroker’s own!) that could be served through trades made in the client’s account.

The similarity of fiduciary relationships to agency relationships is not accidental. At law, all agents are fiduciaries, though not all fiduciaries are agents. That is because there is a class of fiduciaries who are not subject to beneficiary control. For example, a trustee appointed by a parent to manage a trust fund for an infant child is a fiduciary for the child, but is not subject to the child’s control (and is therefore not an agent for the child).

A controversial topic in business ethics surrounds the fiduciary duties of a corporation’s directors and officers in pursuing the governance of the corporation. Some understand the beneficiary of directors’ and officers’ fiduciary duties to be the shareholders of the corporation; if this is right, then the corporation should be managed in the shareholders’ interests. Others understand the beneficiary of directors’ and officers’ fiduciary duties to be the corporation itself (as distinct from the corporation’s shareholders) and see this as underwriting the stakeholder view of the corporation—the idea that the corporation should be managed in the interests of all of its stakeholders. (This is also sometimes called the multi-fiduciary view.)

See also in CEBE:

Further Reading:

  • John Boatright, “Fiduciary Duties and the Shareholder-Management Relation
    Or, What’s so Special About Shareholders?” Business Ethics Quarterly 4(4) (1994): 393-407.
  • Alexei Marcoux, “A Fiduciary Argument Against Stakeholder Theory,”Business Ethics Quarterly 13(1) (2003): 1-24.
  • Business Ethics Highlights, “Morgan Stanley Sued Over Administering Employees’ 401(k) Plan,” August 22, 2016.
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