Fiduciary Duties and Businesses

Fiduciary Duties

One’s Fiduciary Duty is to look out for someone’s best interest.

Fundamentally, a fiduciary duty is the legal requirement of an individual to act in the best interest of another.  In this arrangement, all parties that owe this duty are called fiduciaries and those that are owed the duty are referred to as principals.  For example, lawyers have a fiduciary duty to their clients; guardians have the same duty to their wards.  Specifically, in terms of business law, an article from McFarlin Law, LLP notes that directors and officers of a corporation owe a fiduciary duty to the company and to their shareholders.  Disputes, therefore, often arise as a direct result of allegations that an officer or director breached his or her fiduciary duty.  However, these accusations shouldn’t be made or taken lightly; such declarations can have long-lasting financial and professional consequences for the officer or director.

To help officers and directors of corporations avoid such accusations, the article provides several means through which fiduciary duty can be breached. These examples have several themes, starting with a focus on competition; fiduciary duty is breached when an officer choose to start a competing business or help a business competitor.  Funds also account for a large portion of the possible ways to break fiduciary duty.  Many methods are discussed, including mixing business and personal funds, spending corporate funds on things that do not benefit the corporation, and fraud, incompetence or misappropriation of funds.  Finally, a general code of ethics must play a role, as ethical violations or negligent errors also can serve as a breach of fiduciary duty.

In the case that accusations are made, a review will be conducted by the court, which will look at the actions of the officer in question.  The court will have to determine if an ordinarily prudent person would have acted the same way under similar circumstances.  For instance, did the officer act on good faith?  Would someone else have made the same decisions in the same situation?

Cybersecurity Continues to be a Problem for Businesses

Cybersecurity

A lack of Cyberecurity is costing businesses billions of dollars and making it easy for hackers to get into their systems.

A new study recently revealed that hackers have cost consumers and businesses between three hundred and seventy five billion dollars and five hundred and seventy five billion dollars worldwide, with North America and European businesses suffering the highest losses.  This figure is only expected to grow, as the government continues to search for solutions to cybersecurity. According to an article recently completed by JD Supra Business Advisor, the Obama Administration has produced a voluntary framework of guidelines that offer up the best practices and standards designed to help companies protect their networks from hackers.  However, these suggestions are just that—voluntary recommendations; it remains to be seen whether the majority of businesses in the United States will implement the plan.

The presidential administration has called on Congress several times in the past to enact legislation to strengthen cybersecurtiy and help businesses combat hackers.  The House and the Senate have both attempted to create and pass legislation to help in the issue.  However, they have always struggled to pass any offerings due to privacy concerns.  This is true in the most recent attempt by the Senate Select Committee on Intelligence, which attempted to pass the Cyber Information Sharing Act, otherwise known as the CISA.  The act insisted upon data being shared between the government and companies, in the basis that open lines of communication would help stop cyber-attacks.  Those who support the bill believe that this sharing of information can help protect businesses from future litigation and lawsuits, as disclosing the data and details of any cyber-breaches could cut back on the legal aspects of the process.  Those who oppose the bill, however, believe this requirement to share information fails to protect the privacy of Americans.

Regardless of those for and against this bill, all can agree that something needs to be done on the issue.  Currently, the lack of federal legislation means businesses must develop and execute their own form of cybersecurity.  These plans are often complicated—including provisions for protecting valuable data and a plan of action should a cyber-breach actually occur.  While preparation is of course necessary, it is only made more difficult by the fact that businesses are alone in the task.

Businesses Become More Open to Litigation

Taking Affirmative Action when a business has potential claims against them is the best thing to do.

Taking Affirmative Action when a business has potential claims against them is the best thing to do.

When it comes to Business Litigation in the United States, as well as other countries, Mondaq breaks down the feelings on this topic from the business end in a recent article. Businesses have almost always viewed litigation as taxing, causing employees to spend a large amount of time responding to discovery requests and becoming liable for legal fees and other costs. On the other hand, businesses have not exactly embraced lawsuits either. With that said, it seems as though times are changing as businesses around the world are seeing the benefits of lawsuits; turning their losses into profit.

Businesses in the US are very proactive in taking the right steps to recover damages when they have potential claims against them. “Affirmative Litigation” is what this is called and is generally apparent in lawsuits in the US courts. Businesses are also considering whether claims can be asserted in other countries as well. There are many US businesses that have operations outside of US soil and are bringing in claims from a variety of different countries to recover damages especially in multinational markets including European, Asian, and Latin American markets.

In the US, one business can represent the interests of all other businesses in one case. For example, in the case of an alleged anticompetitive conduct, a single business can represent each and every consumer of a product against the manufacturers if they are assumed to have planned to set prices, or have come to an agreement to not compete with one and other.

Most businesses would have sought out whether or not another business brought a class action lawsuit instead of bringing their own case back in the day. This is called being an “absent class member” by not taking action on their own, but waiting to see if they would be eligible to file a claim for the purpose of getting part of their class action recovery. Businesses these days can no longer take a passive approach to these situations because the courts have made it harder for them to pursue class action cases. As a result of the courts, many businesses are now instead choosing to bring their own lawsuits to recover damages.