Executives at a company often have a fiduciary duty, not just to the business, but also to any investors or shareholders. These are people who have put their own financial capital into the business in one form or another, and they trust the executives to competently run the company and make decisions in good faith that should support the company’s net worth.
This does not mean that all companies are going to be successful. Some investors do lose their money. Businesses do decrease in value. Some investors are never paid back the money that they expected, perhaps because the business goes bankrupt.
But that alone does not mean that the fiduciary duty has been breached. The issue arises when someone with that fiduciary duty is instead acting in their own best interests.
Why would a fiduciary duty be breached?
Often, claims of a breach of fiduciary duty center around the fact that decisions were made that may help someone personally, but at the expense of the business.
For example, say that an executive decides to go with a new parts and materials supplier for an established company. It turns out that the supplier is one of their family members, so the family benefits from the contract. However, the parts and materials are overly expensive and of lower quality, which means that the company’s valuation itself drops. Consumers are unhappy with the products.
In a case like that, shareholders may complain that the individual in question breached their fiduciary duty. They made a decision that would be financially beneficial to themselves and their family, even though they knew it would harm the business and cause the shareholders to lose money.
These types of cases can get very complex, and all involved must understand their legal options.