Changes in the application and relevance of fiduciary responsibilities

 Understanding fiduciary responsibility

The concept of fiduciary duty takes two forms when it comes to understanding what it is all about. These forms are legal and economic (Steve, 2012). In the legal sense, it is all about the ideology that fiduciaries are managing the assets of others, which the law demands they protect, while the economic ground is that fiduciaries take on the role of investors in the marketplace in the course of such management (Steve, 2012).

The term "fiduciary duty" is much contested, and this has ushered in different definitions and legal implications in different nations. However, when it comes to defining fiduciary duty in terms of how it appears to investors in different contexts of responsible investment, there are some underlying key principles.

Linking fiduciary responsibilities to accounting and management

As Bernard (2001) noted, there are four major kinds of fiduciary duties, and they include:

The duty of loyalty is the most important fiduciary duty, and the concept is simply that decision-makers in a company should not act in their own interests but rather focus on the interests of the company. This simply means that "decision makers in the company should not engage in transactions involving conflict of interest."

Duty of care: in cases where managers do not engage in conflict of interest with respect to their decisions, the next duty they have is the duty of care. It basically entails paying attention and making good decisions. Basically, they just need to pay attention to the company’s goals and make decisions that are not irrational with respect to attaining such corporate goals.

Duty of disclosure: This duty ensures that managers provide reasonably complete disclosure to the shareholders in two cases: when shareholders are asked to vote and when the company completes a transaction that conflicts with shareholders' interests. Basically, shareholders should be granted access to know what the company is doing and how it is doing it.

When a company is being acquired, the duty of extra care is critical because the management selling the company may neglect (or make poor decisions) that will negatively affect the management acquiring the company.Thus, this is a fiduciary fault.

From the above discussions, I do think that fiduciary duties are not centered only on the accounting board but that all employees have both an individual and corporate fiduciary role to play. Thus, fiduciary duties can be linked to all facets of corporate management (accounting, management, etc.).

How fiduciary responsibilities have changed in their application and relevance over the years

From the above discussions, fiduciary duties have changed in one major way in terms of the shift from focusing on just accounting to all aspects of management. Previously, fiduciary duties focused on providing shareholders with necessary accounting (figurative disclosures) information on the performance of their company in order to aid shareholders in making investment decisions. However, there has been a shift in focus to include all aspects of management (decision-making, accounting, HRM, etc.), making all staff fiduciary responsible for the performance of the company, investors’ returns, and overall corporate sustainability.

References

Bernard, S.B. (2001). The Principal Fiduciary Duties of Boards of Directors. Presentation at Third Asian Roundtable on Corporate Governance. Available at: http://www.oecd.org/daf/ca/corporategovernanceprinciples/1872746.pdf [Accessed on: 25-03-2014].

Steve, L. (2012). Reason, Rationality and Fiduciary Duty. Available at: http://www.irrcinstitute.org/pdf/FINAL-Lydenberg-Reason-Rationality-2012-Winner.pdf [Accessed on: 25-03-2014].