Fiduciary duties demystified, harmonization between public and private sectors

While directors are often perceived as powerful decision-makers with high earnings and significant influence over their organizations, the role carries serious legal and ethical responsibilities that many are unaware of. Central to these responsibilities is the concept of fiduciary duty, which demands that directors and accounting officers act in the best interest of the organization or public body they serve.

Fiduciary duties are based on three core principles: loyalty, care, and obedience. Loyalty requires that individuals avoid conflicts of interest and act solely in the interests of the entity they serve. Care refers to exercising diligence, informed decision-making, and seeking expert advice where necessary. Obedience mandates compliance with relevant laws, corporate policies, and governance frameworks.

In the private sector, the primary legislation guiding fiduciary duties are the Companies Act No. 71 of 2008 (herein after referred to as “the Act”), and the King IV Report on Corporate Governance. Section 76 of the Act sets out the conduct expected from directors. They must act in good faith, for a proper purpose, and with the degree of care, skill, and diligence expected of someone in their position. Section 76(4) further stipulates that directors must base decisions on informed judgment and communicate material information promptly, except where confidentiality or public availability applies.

Section 77 of the Act introduces legal consequences for breaches of these duties, holding directors personally liable for losses resulting from unauthorized actions, misleading statements or misconduct.

The King IV Report complements the Act by promoting ethical leadership and integrity. It encourages directors to be transparent, accountable, and stakeholder-oriented. King IV aligns closely with fiduciary expectations by emphasizing values-based leadership that supports both compliance and sustainability.

In the public sector, fiduciary responsibilities are framed by the Public Finance Management Act No. 1 of 1999 (herein after referred to as the “PFMA”), and the Municipal Finance Management Act No. 56 of 2003 (herein after referred to as the “MFMA”). The PFMA applies to national and provincial government institutions, while the MFMA governs municipalities.

Under Section 38 of the PFMA, accounting officers must ensure efficient financial systems, internal controls, and fair procurement processes. These duties aim to uphold public trust through responsible use of resources and prevention of corruption. Similarly, the MFMA assigns fiduciary responsibilities to municipal officials, emphasizing financial transparency and accountability to the public.

Common institutional failures include poor documentation of decisions which undermines transparency and overlooking conflicts of interest which jeopardizes trust. To mitigate such risks entities should adopt proactive measures such as:

1. Establishing clear internal policies;
2. Conducting regular audits and reviews;
3. Providing ongoing education and training for fiduciaries.

Ultimately, fulfilling fiduciary duties requires more than compliance. It involves active participation, informed decision-making, and a firm commitment to integrity. Whether in the corporate or public domain, responsible governance is essential to sustaining effective organizations and public confidence.

Delisha Budhoo
Attorney | LLB
Corporate Advisory and Forensic Services