You learn about being a fiduciary in law school. Depending on who teaches the subject, this term can sound boring, scary, or confusing. Law schools are poor at teaching this subject in context and it's too bad because it is essential to your role as an attorney.
Think about this: becoming a lawyer confers a unique state-granted privilege to act as a fiduciary for someone else. This is not an agent or a broker but a fiduciary. Wow. This is an honor and a privilege. It's one of the most rewarding things we do as lawyers.
Okay, so you've heard the word before. It's discussed in your corporate law and ethics classes, but often buried among other important topics. Too often it's couched in terms of someone else acting as a fiduciary, not you, and it's unfortunately included when learning about agents or brokers. There are courses on agency law, which used to be mandatory, but are now mostly optional, and still do not directly address what it means to be a fiduciary.
When you act as a fiduciary, you are in an essential position of trust for someone else and are charged with making decisions on their behalf in their, rather than your own, best interests. Yeah, it's a mouthful. Please go back and read that last sentence two more times.
Being a fiduciary is at the heart of being a lawyer. It's a vital legal and ethical relationship that's also integral to being a good CEO, board member, banker, investment advisor, partner, and just a competent person in our abstract complex world.
Ultimately, what it means to be a fiduciary is to use your specialized skills, access, and resources to act on behalf of another in their best interests, or how that person would act on their own behalf if they had your education, skills, access, or resources.
Four principles to keep in mind in your capacity as a fiduciary:
1 Know if you're acting as a fiduciary and on whose behalf.
2 Slow down.
3 Seek advice and help.
4 Always put your clients' interests ahead of your own.
Principle 1: Know If You're Acting as a Fiduciary and on Whose Behalf
When you act as an attorney for someone, you are a fiduciary. You are a service provider. Your client is the customer. But unlike the person selling you the latest iPhone at your local cellular store, you must not only treat them like a customer, you must always have their interests above your own.
On paper, this is easy, but in the real world it gets complicated quickly due to differing communication abilities, access, competing interests, and misalignments of incentives. You'll hear a lot about elements of what comprises a fiduciary duty. You may hear about duties of loyalty, care, good faith, lawful action, confidentiality, etc. Depending on what type of fiduciary you are, for example, a lawyer, board director, or trustee, some or all of these may come into play. But we don't want to overload and confuse you like law school. Let's just focus on simply being prepared and acting in the best interests of someone else.
Here are two hypotheticals to illustrate these complexities.
Example A
You're a second-year law student taking a clinic, supervised by a local attorney who is donating their time and graded by a full-time law school professor. You like both the professor and local attorney and may hit the attorney up for a job when you graduate. Your law school's clinic is currently working several complex habeas death penalty petitions at the federal appellate level. This is the number one focus during weekly clinic meetings, and the professor is recruiting all available resources to focus on these high-profile cases.
One case assigned to you is a 14-year-old juvenile in detention due to a previous gun charge, who is currently facing a car theft charge. The juvenile has a third-grade reading level and has been recently diagnosed with borderline personality disorder and ADHD, but with limited treatment options in juvenile detention. The prosecutor presents an offer and the professor encourages you to persuade the juvenile to take it and move on to the next case. The local attorney wants you to spend more time researching before coming to a decision. It's close to semester finals and you sit in your room wondering what to do.
Example B
You're a junior associate tasked with helping a senior partner on an acquisition. Your client is an internet security company looking to buy another firm in its industry. Your client was recently part of a majority purchase by a private equity firm. The private equity firm owns 55% of your client, the CEO owns 10%, and the remainder of the firm is owned by wealthy individuals and family offices with little expertise in the space.
The CEO and your senior partner are good friends, and the CEO is seeking to divest a substantial business line of the company to raise cash for this contemplated acquisition. Since your client just completed the private equity firm deal, you wonder if divesting a big part of the business is what the private equity owner would want the CEO to do. To make matters more interesting, the company the CEO wants to buy is also owned by the same private equity firm.
Perhaps you see the issues quickly, perhaps not. What you need is a framework to address and best manage the fiduciary issues before you give legal advice.
Our framework:
1 Who is the client?
2 Who is representing the client and/or giving guidance to you?
3 What conflicts of interest could this person have?
4 What conflicts of interest might you have?
Let's use our hypotheticals to work through the framework.
1 Who is the client?
In Example A, it's the juvenile. In Example B, it's the internet security company. That's obvious, but then you look to the next question.
1 Who is representing the client and/or giving guidance to you?
Unlike a simple situation where a person hires you to defend them in a lawsuit and they give you direction, these cases are a bit different. In Example A, the juvenile may not be able to give you any direction, so you are getting advice from both the local attorney and the professor. In Example B, the CEO is giving you direction. The senior partner is most likely giving you guidance as well. This leads to the next question.
1 What conflicts of interest could this person have?
In Example A there are potential conflicts with the professor trying to move work off her plate. Getting this case done leaves more resources for others. The local attorney could have a conflict depending on her relationship with the prosecutor.
In Example B, the CEO owns 10% of the company. They may or may not be aligned with the wishes of the majority owner, the private equity firm. If they are not, you have a problem. Even if they are, the private equity firm and CEO may not be aligned with the rest of the shareholders. This isn't a case where the majority of ownership is all that matters. It's what is best for your client—the company—that matters. If there was situation where the CEO and private equity firm wanted to do something in their best interests to the detriment of the rest of the shareholders, you have a real issue. Also, the senior partner and CEO are good friends, which can play into the conflict dynamics here. Okay, now let's look to the last part of the framework.
1 What
