Categorised | Conservatives, General, Labour, Lib Dems |

Are bankers exempt from a fiduciary duty?

It is generally accepted that company directors have a fiduciary duty to their shareholders. The word itself comes originally from the Latin fides, meaning faith, and fiducia, trust. In other words, a fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. As is the case of a company director.

If we assume that the directors of banks also have this fiduciary duty, why is it that they are being asked to resign, rather than being sacked? In addition to their fiduciary duty, directors must exercise a reasonable standard of care and act responsibly. Now, whilst there is some reasoned argument that the world economic situation compounded the problems our banks faced, it is ludicrous in the extreme to suggest that this is the sole reason for their demise and therefore, the need for vast amounts of taxpayers money to bail them out. With position comes responsibility, if the directors of our banks got it wrong, then they must pay the price. It is after all, they (collectively or otherwise), who made the decisions that ultimately lead to the failure of these once great institutions. Theoretically at least, if any director failed in their fiduciary duty, acted recklessly or without due care then, not only could they be sacked, but they could find themselves liable to a civil action. That notwithstanding, it is clear to me, that if ‘trust and confidence’ is an integral part of a fiduciary’s duty, then there has been a failure.

Government ministers have consistently talked about the fact that there must be “no reward for failure”, this pre-supposes that the bankers have failed,if this is the case, then by which yardstick? Is it in terms if their fiduciary duty, duty of care or that they have acted recklessly? If they have failed, then why were they allowed to leave voluntarily, with or without a compromise agreement? Why weren’t they sacked, why haven’t we heard ministers talk about suing directors that have failed? Could it be that those in public office also have a fiduciary duty and that they themselves could be subject to litigation? I don’t know the answers, I am no lawyer, but I say this, if there is no reward for failure, then there must be action against anyone that has failed in their duties. Not for revenge, but to prevent this happening again. In addition, if the government is correct in its assertion that certain bankers have failed, then surely, the right way to go is not to renege on the terms of any compromise agreement, but to sue the individual in their personal capacity. These individuals have either failed or they have not, ministers must be careful in making damning statements, yet failing to back them up with appropriate action.

I am not qualified legally or otherwise to determine whether or not any individual director has failed in their fiduciary duty. Therefore I am not suggesting anyone (bankers or otherwise) has acted improperly, I am relying only on the governments own words, that there should be no reward for failure, which implies that there has indeed been a failure. However, in the “court of public opinion” I would like to state for the record, that I believe there is merit, perhaps even a duty, for the government to seek legal advice on this matter, because they, as a majority shareholder in these banks, have their own fiduciary duty to the shareholders, you and me!


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3 Comments For This Post

  1. CJ Says:

    The fact is that EVERYONE involved in the causes of current economic storm has failed and, first and foremost, that is the banks who have become so heavily embroiled in bad investments. Often, as I understand it, that either means in unrealistic mortgages, or in each other’s more dodgy schemes.

    That Madoff and his ilk were allegedly so easily able to dupe high flying bankers and investment “experts” suggests that few of them had more than an inkling of what they were doing. Now, we appear to be rewarding the recklessness that has brought many a hard-working citizen to his or her financial knees with huge pensions and golden handshakes.

    It stinks and they and the government seem to expect us to just stand around holding our noses until the smell dies down.

  2. Frustrated Voter Says:

    @ CJ: My intention was not so much to single out bankers, but to highlight the hipocrisy of a government hell-bent on telling us why failure should not be rewarded, but the not using tools already available to address such failures. I remain convinced that it is a case of ‘there but for the grace of god…’. Government has no wish for the public to be aware that they too, as public servants, also have a fiduciary duty.

    Borrowers must also accept their responsibility, if they over-extended themselves, or started to look at home ownership as a money making scheme rather than a place to bring up their family. But that pales into insignificance when looked at in context of the failure of government to govern, regulators to regulate and banks to…well… bank!

  3. Free Vote Says:

    The directors of all companies have duty to act in a manner commensurate with the position, this in addition to their fiduciary duty. They must be competent and measured and the further up the food chain you are, the higher the expected standards. It is inconceivable that the government do not have some form of legal redress against the directors of failed banks. I wonder why they are so reluctant to explore this avenue?

1 Trackbacks For This Post

  1. Have the bank directors failed in their fiduciary duties? « British Politics’s Blog Says:

    […] a comment » Whilst doing my rounds today, I came across this article which points out that all directors have a legal duty of care or, if you prefer, a fiduciary […]

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