Corporate Officers’ Fiduciary Duty of Loyalty
Companies can act only through individuals, be they employees, officers, or directors. For executive-level decision making, companies rely on the actions of their managers, officers, and directors. As a result, companies must entrust officers and directors with very confidential information. Often times, this information includes potential business ventures that the company is considering, or investments and new lines of business in which the company may wish to engage in the future.
Because directors and officers are given access to business opportunities as a result of their position with a company investigating those potential ventures, officers of a company and members of a company’s Board of Directors owe fiduciary duties not to be disloyal or compete with the company they serve. The basic philosophy supporting the enforcement of these fiduciary duties is to encourage loyalty and trust, and for a company to be protected in sharing necessary information to its senior management without fear of those individuals stealing the opportunity to enrich themselves instead of the company. In Texas, company officers and directors owe the company the fiduciary duty of loyalty, in addition to the duties of care, good faith, and protection from self-serving at the company’s expense. As a fiduciary, all officers and directors of companies owe a duty to further the interest of the corporation, not themselves.
Corporate officers and directors must strictly observe and fulfill this duty in order to protect and benefit the company, and the exercise of fiduciary duties for the benefit of the company over the individual’s interest requires an undivided and unselfish loyalty to the corporate interest. In the event of a conflict between the duty of loyalty owed to the company, on the one hand, and a competing self-interest, on the other hand, the duty to the company must always prevail.
As a result of the unique access to corporate opportunities and information that company officers and directors have, Texas law stringently enforces on officers and directors.
The attorneys at Watts Guerra have successfully represented companies whose employees, managers, officers, and directors have breached their duty of loyalty owed to the company. If you believe that an officer or director of your company may have unfairly competed with the company, please consult with an attorney.
Written By:*
Edward Allred
Watts Guerra LLP
4 Dominion Drive, Bldg 3, Suite 100
San Antonio, Texas 78527
Office (210) 447-0500
Mobile (210) 685-1845
eallred@guerrallp.com
*This information is provided to supply relevant information concerning the subject matter of this article, and should not be received as legal advice. Legal advice is only given to persons or entities with whom Watts Guerra LLP has established an attorney-client relationship. Available causes of action and remedies vary from case to case and depend on the underlying facts of each. If you have another lawyer, you should consult with your own attorney, and rely upon his or her advice, rather than the information contained herein.
© Watts Guerra LLP 2015
