Are fiduciary duties owed by members of the governing body and to whom are they owed?

Corporate Governance

Austria Small Flag Austria

Members of the supervisory board owe fiduciary duties to the company. Members of the supervisory board have to put their private interests behind the interests of the company. In order to safeguard an unbiased control over the managing directors, business transactions between members of the governing body and the company are subject to the prior approval of the governing body (duty of loyalty).

Brazil Small Flag Brazil

Pursuant to the Brazilian Corporation Law, the directors have the following duties and obligations:

  1. a duty of diligence, employing the same care and diligence that every diligent and honest person employs in its own business;
  2. to act within the scope of their duties without misuse of power, refraining from the performance of gratuitous or non-authorised acts and from the receipt of personal advantage by reason of the performance of their duties;
  3. a duty of loyalty;
  4. to act without conflict of interest, not intervening in any transaction where they have an interest conflicting with that of the company; and
  5. a duty of information.
  6. even if elected by a certain group or class of shareholders, they have the same duty to the company as everyone else, and must not, even in the defence of the interests of those who elected them, fail to fulfil these duties.

In this regard, directors may be held liable in the civil sphere for the damage resulting from a breach of their fiduciary duties, acts performed with negligence or in bad faith, or which violate the law or the company's bylaws; in some cases, criminal liability may also apply.

As regards conflicts of interest, a director shall not take part in any corporate transaction in which he or she has an interest that conflicts with the interest of the company, nor take part in the decisions made by other directors on the matter. He or she shall disclose his or her disqualification to the other directors and shall cause the nature and extent of his or her interest to be recorded in the minutes of the meeting of the board of directors.

Notwithstanding compliance with the conflict of interest provision, the director may only contract with the company at arm’s length. Any business contracted other than on an arm’s-length basis is voidable, and the director concerned shall be compelled to transfer to the company all benefits that he or she obtains through such business.

France Small Flag France

Although not characterised as “fiduciary duty” (a common-law concept), members of the governing body (board of directors or supervisory board), as well as executive officers, have a duty to act diligently in the interest of the company, along with duties of loyalty, care and to insure compliance with the law and the bylaws.

Germany Small Flag Germany

The Management Board acts as trustee of the company's assets and owes fiduciary duties of loyalty to the company. It must always act in the best interests of the company and not take into consideration personal interests. As part of its fiduciary duties, each member of the Management Board must:

  • strive to avoid conflicts of interest or at least disclose them;
  • adhere to its statutory non-competition obligation;
  • protect confidential information of the company;
  • exploit business any opportunities for the company, and not for itself of third parties (corporate opportunities doctrine); and
  • cooperate with the Supervisory Board and the shareholder meeting in a spirit of trust.

Greece Small Flag Greece

The members of the Board have fiduciary duties against the company, as these are set out above in question 7.

Hong Kong Small Flag Hong Kong

As prescribed by common law, the Companies Ordinance, A Guide on Directors’ Duties and the Director’s Handbook, directors of a Hong Kong company owe common law fiduciary duties and statutory duty of care, skill and diligence to the company as a whole, its shareholders and to a lesser degree, parties like employees and creditors (especially when the company is insolvent and the shareholders have no remaining financial interest). A Guide on Directors’ Duties sets out the following 11 general principles of duties expected of a director:

  • Duty to act in good faith for the benefit of the company as a whole;
  • Duty to use powers for a proper purpose for the benefit of members as a whole;
  • Duty not to delegate powers except with proper authorization and duty to exercise independent judgement;
  • Duty to exercise care, skill and diligence [Note: a director is required by section 465 of the Companies Ordinance to exercise reasonable care, skill and diligence determined objectively by the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions of a director, and subjectively by the general knowledge, skill and experience that the director has];
  • Duty to avoid conflicts between personal interests and interests of the company;
  • Duty not to enter into transactions in which the directors have an interest except in compliance with the requirements of the law;
  • Duty not to gain advantage from use of position as a director;
  • Duty not to make unauthorized use of company’s property or information;
  • Duty not to accept personal benefit from third parties conferred because of position as a director;
  • Duty to observe the company’s constitution and resolutions; and
  • Duty to keep accounting records.

The Director’s Handbook published by the Hong Kong Stock Exchange requires directors to adhere to duties of a similar nature when performing their functions. Different from A Guide on Directors’ Duties, the Director’s Handbook also require directors of a listed company to be answerable to the company for the application or misapplication of its assets and to disclose fully and fairly his interests in contracts with any company within the group which the company belongs to.

Japan Small Flag Japan

Under Japanese law, directors and executive officers must perform their duties (i) with the care of a prudent manager, (ii) in compliance with all laws and regulations and resolutions of shareholders' meetings and (iii) in a loyal manner. It is said that the duties of (i) and (iii) are not clearly distinguishable in Japan, and that these duties include so-called fiduciary duties owed by directors and executive officers to the company or all of shareholders. There is no legally binding concept of fiduciary duty owed by majority shareholders to minority shareholders in Japan.

Portugal Small Flag Portugal

The members of governing bodies are obliged to act with due care and skill and in the company’s interest, bearing in mind shareholders’ long-term interests and considering the interests of other stakeholders relevant for the company’s sustainability, such as employees, clients and creditors.

South Korea Small Flag South Korea

One distinguishing feature of the Korean corporate governance regime is that a Company’s BOD owes fiduciary duty only to the Company (and not to the Company’s shareholders) and, therefore, directors are required to perform their duties in the best interests of the Company itself. According to the legal commentators, however, the directors should, while not legally required, also consider shareholders’ interests in determining the best interests of the Company.

Switzerland Small Flag Switzerland

The members of the board and all persons tasked with the company's management (i.e. members of the executive management) have a duty of care and loyalty that requires them to carry out their responsibilities with due care and to safeguard the interests of the Company. These duties are owed to the company (see question 5 regarding relevant constituencies). In addition, the members of the board and executive management are required to treat shareholders under the same circumstances equally.

United States Small Flag United States

Directors on a corporate board owe fiduciary duties of care and loyalty to the corporation. This generally means that directors have a duty to act in a reasonably well-informed manner in the best interests of the corporation and its shareholders. Directors are entitled to rely on information from management and on the opinions of experts in reaching their decisions.

In ordinary circumstances, business decisions made by the board or individual directors are subject to what is known as the “business judgment” rule. This means that courts will not second guess the decisions of a director or board if the decisions were made in good faith, with the care that a reasonably prudent person would use and with a reasonable belief that the decision was in the best interests of the corporation and its shareholders. While there are heightened standards of review that apply to decisions or actions that entrench directors or disenfranchise equity holders, in ordinary circumstances, courts are generally very deferential to the business judgment of a board. Depending on the circumstances, the heightened standards of review require that the director’s decisions be reasonable in relation to the threat posed or offer a compelling justification if the primary purpose of an action is to interfere with a shareholder vote.

The duty of loyalty requires directors to be disinterested and to perform their duties independently. Additionally, all director action must be supported by a good faith and honest belief that it is in the best interest of the corporation and the corporation’s shareholders. If an action implicates the duty of loyalty, the director must demonstrate that the action was entirely fair to the corporation and its shareholders. If a director intends to act, but may have a conflict of interest, the duty of good faith or candor requires the director to fully and accurately disclose the conflict.

Whether a manager or member owes a duty of care to an LLC is governed by the terms of the LLC operating agreement. Unlike corporations, LLCs can explicitly state that managers or members do not owe any duties to the company, including the duty of care and the duty of loyalty.

United Kingdom Small Flag United Kingdom

Directors owe certain duties to their companies under, inter alia, the Companies Act 2006, including duties: (1) to act within powers; (2) to promote the success of the company; (3) to exercise independent judgment; (4) to exercise reasonable care, skill and diligence; (5) to avoid conflicts of interest (6) not to accept benefits from third parties; and (7) to declare an interest in a proposed transaction or arrangement. When exercising the duty to promote success of the company, directors should have regard to a range of stakeholders including, amongst others, employees, suppliers, customers, the community and the environment. Larger public and private companies are required to report on how they have regard to such stakeholders from financial years commencing in 2019.

In addition, directors owe fiduciary and certain other duties as a matter of common law (for example, a duty of confidentiality) and duties under certain other specific legislation (such as health and safety and anti-bribery law) which are beyond the scope of this note.

Executive and non-executive directors are subject to the same duties and it is possible (though rare) for shareholders to bring so-called "derivative actions" against directors on behalf of a company for an alleged breach of duty.

Canada Small Flag Canada

Directors owe the fiduciary duty to the corporation. When discharging their duties, directors must act honestly and in good faith with a view to the best interests of the corporation and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In determining the nature of the best interests of the corporation, under Canadian law the directors may consider the interests of classes of stakeholders, such as shareholders, creditors or employees, among others.

Italy Small Flag Italy

Directors’ duties and responsibilities are governed – as a general rule – under the ICC.

On the one hand, directors shall act in a loyal manner, as Art. 2390-2391 ICC sets forth that they shall not: (i) carry out any activity in competition with the company (unless so authorized by the shareholders’ or quotaholders’ meeting), (ii) use for their own advantage or the advantage of third parties any information (including information on business opportunities), of which they become aware as a consequence of their office and that might be exploited by the company.

On the other hand, pursuant to Art. 2392 ICC, directors are under a general duty to: (i) carry out the management of the company in accordance with the applicable laws and regulations, as well as the by-laws, (ii) act with the degree of care (diligenza) required in relation to their office, their professional skills and the particular features of the company.

Specific provisions apply to banks and financial institutions.

Turkey Small Flag Turkey

TCC regulates board member’s duty of care and loyalty. Accordingly, the members of BoD and the third parties responsible for the company management are obliged to carry out their duties with due care of a cautious director and to preserve the company interests in accordance with the good faith (TCC, article 369). Moreover, the board members are liable for the damages to the company, its shareholders and creditors in the event that they violate their obligations set forth in the law and AoA (TCC, article 553).

Luxembourg Small Flag Luxembourg

Members of the board are under the obligation to act in the best interest of the company and they owe their fiduciary duties to the company.

For qualifying listed companies, the LSE Principles further indicate that the board as a collective body shall act in the corporate interest, shall serve all the shareholders by ensuring the long-term success of the company and the directors shall exercise the mandate with integrity and commitment and shall make decisions in the company’s interest and independently of any conflict of interest.

Ukraine Small Flag Ukraine

All JSC officials (i.e. members of the supervisory board, executive board and audit commission) have an obligation to act in the best interest of the company. Similarly, directors and executives in a LLC must act reasonably and in good faith in the interests of the company.

Australia Small Flag Australia

Directors have the following fiduciary duties under common law (which are largely reflected in the Corporations Act):

  • to act in good faith in the best interests of the company and for a proper purpose;
  • to exercise a reasonable degree of care, skill and diligence; and
  • to avoid actual and potential conflicts between their own interests and those of the company, and between their duty to the company and their duties to third parties (for example, duties owed as directors of other companies).

Under the Corporations Act, directors also must not improperly use their position, or information obtained in their role as a director, to gain an advantage for themselves or someone else, or to cause detriment to the company.

The common law duties require directors to take reasonable steps to put themselves in a position to guide and monitor the management of the company. In particular, they must have a general understanding of the company's business, act in accordance with its constitution and exercise independent judgment. In addition to reasonable skill, care and diligence, they should use any actual knowledge and skills that they have, for example, in financial management.

These fiduciary duties are imposed on both executive and non-executive directors, as well as people who act in the position of a director, including persons who were not formally and properly appointed (de facto directors) and persons whose instructions the directors of a company are accustomed to following (shadow directors).

Directors owe their duties to the company. With respect to the duty to act in the best interests of the company, this is interpreted as a duty to act in the best interests of the shareholders as a whole.

Updated: May 20, 2019