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Monday, June 13, 2011

Fiduciary Shades of Gray - Brian K

Fiduciary responsibility among board members in a non-profit has been the topic of discussion several times in our conversations in class. What is fiduciary responsibility? Well, the sometimes reliable Wikipedia defines fiduciary as a term “from Latin fiduciarius, meaning "(holding) in trust"; from fides, meaning "faith", and fiducia, meaning "trust") is a legal or ethical relationship of confidence or trust regarding the management of money or property between two or more parties, most commonly a fiduciary and a principal.[1] In plain English, it is the responsibility of someone acting on behalf of someone else to do so in a prudent manner, protecting the interests of the principal. There are corporate laws that address fiduciary responsibility in the financial realm, and as discussed in Michael R. Siebecker’s article about trust and transparency, these regulations are less than adequate. He states that “reliance on abstract concepts of fiduciary duties results in a system of inconsistent and incoherent regulation of corporate behavior.[2] He goes on to illustrate this point by asking that since an organization is supposed to curb illegal activity, is it the responsibility of the company to tell drivers in a delivery company not to park illegally, even when it could mean a late delivery, and whether or not officers of a pharmaceutical company should prevent illegal kickbacks from salespeople to physicians that prescribe their products.

I would like to start by saying I think the two examples above are completely different. I would tell my delivery drivers that they must obey all traffic laws while operating a company vehicle, but I would also express the importance of timely delivery. I wouldn’t officially condone illegal parking, but I would be unlikely to spend company resources investigating possible illegal parking incidents unless they were complained about to the company by a member of the public. Why is that, you ask? Well, I believe that responsiveness to the public’s concerns is incredibly important, and that could be discussed to be for several reasons, perhaps I’ll talk about image in another blog entry, but it is important to connect with your customers and address issues will suffice for this entry. I wouldn’t spend the resources because you would almost have to have someone following the drivers around all of the time to ensure that they weren’t parking illegally, or you would have to have cameras on the vehicles. Both of these solutions are quite costly, and just aren’t really practical to implement for a minor traffic violation.

The pharmaceutical example is completely different to me. Instead of a minor traffic violation, we are talking about an illegal act of “bribing” a physician to prescribe your products. This must be actively watched for in the organization and eradicated whenever it is discovered. Unlike the parking example, these kickbacks could potentially expose the company to a great deal of liability. Lawsuits from another pharmaceutical company, or from the family of a patient that was treated with the medication are great examples of this exposure. If it is found that the company condoned bribes to prescribe, the liability shifts more from the physician to the company manufacturing the medication.

Fiduciary responsibility is a subjective animal, just as Seibecker’s article discusses. Like everything else in life, it is not black and white, and careful consideration should be made of all of the circumstances of a decision before it is made. To be applicable across the board, federal regulation of fiduciary responsibilities is very general, and provides a great deal of “wiggle room” for those that wish to manipulate the system. There will always be those that abuse the system, and overregulation will only confuse the situation further. Volumes and volumes about laws governing fiduciary responsibility cannot and will not replace good common sense or a conscience that says that doing the right thing for your organization is the most important priority.

[1] Fiduciary. (2011, May 27). Retrieved June 1, 2011, from Wikipedia:

[2] Siebecker, M. R. (2009). Trust & Transparency: Promoting Efficient Corporate Disclosure Through Fiduciary- Based Discourse. Washington University Law Review , 115-174.

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