Vocabulary Note:

fiduciary (n) – доверенное лицо;

fiduciary (adj) – фидуциарный, основанный на доверие;

fiduciary duty – обязанность облеченного доверием лица

Exercise 14

Read the following text to answer the questions below/

1. Why must directors have fiduciary duties?

2. What is the difference between the duty of care and the duty of loyalty?

3. What is the main idea of the duty of obedience?

Fiduciary Duties

Fiduciary Duty. Because board members are entrusted with the money and property of the association they are held to a higher standard. They are deemed "fiduciaries" and have a duty to act in the best interests of the membership.

“A duty to act for someone else's benefit, while subordinating one's personal interest to that of the other person. It is the highest standard of duty implied by law” (e.g., trustee, guardian). (Black's Law Dictionary.)

Duty of careis a standard that requires a board member to exercise the same care that an ordinary, prudent person would exercise in a like position or under similar circumstances. It means that board members should attend board meetings and be informed about the activities of the organization in order to be able to make informed and independent decisions when voting. State laws differ on the degree of care required of board members.

Duty of loyalty is a standard that requires a board member to act in good faith, be faithful to the organization and pursue the organization’s best interests. It means that board members must be dedicated to the organization’s mission and put the interests of the organization above self-interest.

A breach of this standard would be considered self-dealing. To eliminate the risk of self-dealing, directors should provide full disclosure of any issues that could cause a potential conflict of interest. If potential conflicts of interest occur, the affected board members should not attempt to unduly influence the rest of the board and should recuse themselves from discussing and voting on the matter.

Duty of obedience requires the board to act in accordance with the organization’s rules and policies, and in furtherance of its goals as stated in the mission statement, articles of incorporation and bylaws. In addition, the board must comply with state and federal laws. The duty of obedience forbids acts outside the scope of corporate powers.

Exercise 15. Duties of a Board of Directors

Complete the text with the phrases from the box. Mind the use of proper prepositions with certain verbs and verb phrases.

to the shareholders; for his own benefit; for the finances and legal requirements of the corporation; on behalf of the client; on the fiduciary; with the client to the trust's beneficiaries; at the expense; in regard to the client; in good faith; over personal interests; to a client

Corporate board members have a fiduciary responsibility to care (1) …………………….. They must act

(2) ……………. and with a reasonable degree of care, and they must not have any conflicts of interest. That is, the interests of the company must take precedence (3) …………………..of individual board members.

A fiduciary duty is an obligation to act in the best interest of another party. For instance, a corporation's board member has a fiduciary duty (4) …………, a trustee has a fiduciary duty (5) …………, and an attorney has a fiduciary duty (6) ………………...

A fiduciary obligation exists whenever the relationship (7) …………….. involves a special trust, confidence, and reliance (8) ………………….. to exercise his discretion or expertise in acting for the client.

When one person does agree to act for another in a fiduciary relationship, the law forbids the fiduciary from acting in any manner adverse or contrary to the interests of the client, or from acting (9) …………… in relation to the subject matter. The client is entitled to the best efforts of the fiduciary on his behalf and the fiduciary must exercise all of the skill, care and diligence at his disposal when acting (10) ……………. A person acting in a fiduciary capacity must follow a high standard of honesty and full disclosure (11) …………and must not obtain a personal benefit of the client.