Duty of care

Duty of Care and Duty of Loyalty are the two primary fiduciary duties directors owe to a company, requiring them to make business decisions that are in the organization’s best interests only after taking all information carefully into consideration.

Duty of care requires company directors to make business decisions with utmost care, after taking all available information into account. Duty of loyalty requires a director to be completely loyal to the company at all times and act in the best interests of the company. It also imposes the responsibility to avoid possible conflicts of interest, thereby precluding a director from self-dealing or taking advantage of a corporate opportunity for personal gain. Not abiding by the duty of loyalty can result in a court order that results in stiff fines.

Duty of care means a director should essentially be using their best judgement when making all decisions. Failure to uphold the duty of care may result in legal action being brought against the board of directors by shareholders.

The duty of loyalty imposes a number of additional responsibilities upon directors of a company as well. They have to keep information private that they come across in their official capacity as directors. They also have to report all conflicts of interest to the Board of Directors, and obtain legal advice in cases where it is unclear whether or not a conflict exists.

EXAMPLE:

You know how I know our CEO care? Because duty of care says he has to.