Why do directors have a fiduciary duty?
A fiduciary duty arises out of a relationship in which one person or entity is entrusted to control the decisions or interests of another. For example, the common estate planning device of an inter vivos trust sometimes provides for a lending institution to be the trustee and to control the funds within the trust. In such a relationship, the lending institution would be a fiduciary and have fiduciary duties to the beneficiaries of the trust. Similarly, the board of directors of a homeowners’ association exercises control over the affairs of its membership, and based on this special relationship, the directors of the association owe a fiduciary duty to its members. Most jurisdictions have either enacted statutes or have specific case law on point which provides that directors of non-profit corporations are fiduciaries.