Business owners, partners and executives have a duty to “the organization.” Specifically, they have a fiduciary duty to act in the best interests of the company and its shareholders. Most professionals helping to operate businesses take that responsibility quite seriously.
Unfortunately, there are also some people who abuse their positions within organizations for personal profit. When allegations of self-dealing arise, it may be necessary to take legal action. When someone in a position of authority breaches their fiduciary duty, the civil courts can potentially hold them financially accountable or even facilitate the termination of their relationship with the business at issue.
What does self-dealing involve?
Various types of conduct may constitute self-dealing. In many cases, an executive or business owner accused of self-dealing may have manipulated contract negotiations for their own benefit.
Maybe they have a small side business that they run, or perhaps their spouse works for a company in an adjacent industry. They might seek to grant a lucrative contract to their own company or to a company that employs someone they know as a means of enriching themselves and their inner circle. Often, such arrangements involve the company paying more than the market rate for the services or products provided as part of the contract.
Other times, self-dealing could involve using company funds for a short-term loan for personal use. Even attempts at insider trading, where a professional leverages information they know through their position at the company for personal gain, could constitute self-dealing. Any actions taken to enrich someone in a leadership position at the expense of the organization could lead to allegations of self-dealing.
How can the courts help?
In more egregious cases of self-dealing, such as insider trading, the professional accused of misconduct could be at risk of criminal prosecution. Even in cases where criminal charges are unlikely, organizations can use civil litigation to address the issue.
In a scenario involving an inappropriate contract arrangement, the courts could grant rescission and effectively invalidate the agreement. In cases where the self-dealing has generated verifiable financial losses for the company, the organization could request damages.
Injunctions could help prevent the disclosure of trade secrets or additional insider trading. A favorable ruling in the civil courts can also help in cases where the business wishes to remove an executive or a partner wants to buy out a co-owner who has put personal enrichment ahead of company stability.
Understanding that self-dealing is a serious and potentially actionable breach of fiduciary duty can help those in leadership positions hold others within an organization accountable. Timely litigation can limit the harm the organization suffers and can facilitate the termination of a working relationship with a party uninterested in fulfilling their fiduciary duty.