This is an excerpt of Steinecke Maciura LeBlanc’s “Governance for Regulators” handbook. To view additional sections of the handbook, click here.
5. Fiduciary Obligations
Board and committee members have a duty of undivided loyalty to the regulator and to its mandate (and the mandate of any committee on which they sit). This fiduciary duty includes an obligation to deal appropriately with any conflicts of interest that arise, to keep all information obtained in the course of their duty confidential and private unless an exception applies, to avoid engaging in any conduct that would bring disrepute to the organization, and to perform their duties with diligence and respect. We will examine each of these key duties.
Board and committee members generally have immunity from a lawsuit for damages (i.e., to pay money) so long as they acted in good faith. Bad faith is difficult to establish. Even a significant mistake, made honestly, is generally protected. However, a deliberate breach of a fiduciary duty by a Board or committee member might, in some circumstances, amount to bad faith. Take the following example:
Fiduciary Obligations Scenario
Two instructors at a school that educates practitioners for entry into the profession, Joy and Ivy, sit on the Board. The Board is considering creating a provincial entry-to-practice examination that must be passed for applicants for registration. Joy’s niece is completing first year at the school and will likely have to sit the examination. It does not occur to Joy that this could be a conflict of interest, so she does not declare any when discussing and voting against the proposal. Ivy works closely with the Dean of the school. The Dean is concerned that the examination will cause significant additional expense to the school to adapt its curriculum to cover all of the competencies that will be tested by the exam. The Dean conspires with Ivy to quietly lobby other Board members to oppose the proposal in return for the school’s influential endorsement of them for the next election to the Board. The Dean and Ivy agree not to lobby Joy because Joy would likely react negatively to such an approach. If everything is revealed, will Joy and Ivy enjoy the immunity protection?
Joy may well have a conflict of interest. While Joy likely could be criticized for not disclosing the possible impact on Joy’s niece, there is no evidence of bad faith. Joy likely would be protected by the immunity provision. Ivy, on the other hand, deliberately circumvented the conflict of interest rules for ulterior purposes unrelated to the public interest. Ivy likely would not be protected by the immunity provision.
Another general example of the duty of undivided loyalty is that Board and committee members should freely contribute to and respect the intellectual property of the regulator. For example, if a committee member made a major contribution to a record keeping tool for the regulator, they should not expect to control how the regulator uses the tool, nor should the Board member use the tool for personal benefit. For example, the committee member would not “withdraw permission” for the regulator to use the tool in a way that the committee member does not approve. Similarly, the committee member would not use the tool for a privately offered record keeping course.