Fiduciary duty is a common law concept. Essentially it requires directors of corporations, and like officials of certain other types of entities, to act in the best interest of their organization. It also obliges them to act with care and loyalty. The notion of fiduciary duty, or aspects of it are sometimes reflected or entrenched in statute. However, determining whether the particulars of fiduciary obligations have been met in a specific circumstance falls to the Courts. So elements of fiduciary duty evolve over time.
In the recent spate of sexual harassment allegations, typically initiated on social media and known as the "#MeToo" movement, criminal charges have or are being brought in some instances. Perhaps more commonly though, lawsuits have been launched against alleged perpetrators, the organizations where the incidents occurred and/or their boards or other governing bodies. Given the widespread publicity that has attended the movement, it is hard to argue against the average person being aware of the issue and of the prevalence of misbehaviour.
Organizations themselves may be at risk of having to pay damages under the doctrine of vicarious liability, which potentially imposes liability on an employer, or other principal, for improper conduct by its employee or agent. That is a subject for another column, other than to note that in Canada organizations have, in some situations, been held accountable for sexual misconduct by those they have hired or contracted.
Which brings us to board or director personal liability and back to fiduciary duty. Currently there is little, if any, case law on the relationship between the adoption of harassment policy and fiduciary liability. The jurisprudence in this area is still evolving.
Except for the smallest non-profit groups, most boards or board members do not actively involve themselves in the day-to-day operations of their organizations. Rather they establish a policy framework within which the group carries out its mission. In that context, they can still be held personally accountable. Adequately managing the risks faced by an organization is broadly part of fiduciary duty.
In the wake of the countless revelations involving sexual or physical abuse of vulnerable individuals in educational, religious, social service and recreational institutions or groups in the last fifty years or so, it has become best practice for organizations to adopt screening policies for vetting potential employees or...