Fiduciary duties
The word
fiduciary
comes from the Latin for "trust." When shareholders entrust the duties of ownership to the board of directors, those directors have a legal responsibility to act in the best interest of those shareholders.
One of the most important differences between public
and private ownership is that the owners of a publicly owned company — the shareholders — don't
exercise the same kind of control over their company's direction that private
owners do.
In fact, it would be practically impossible for shareholders to run a public company. The large number of shareholders, with holdings ranging from fewer than 100 shares to many thousands of shares, makes collective discussion impossible. Ownership also changes constantly as shares are traded. Furthermore, shareholders are usually geographically scattered and unacquainted with one another. And most shareholders consider their share of ownership as an investment, not an opportunity to exercise control over the company.
Therefore, the board of directors runs the company on behalf of shareholders. Ideally, these directors should be qualified to make informed business decisions and to supervise company management on behalf of shareholders. Their smaller number means they can make collective decisions much more easily than thousands, or millions, of scattered shareholders could. And by law directors have a fiduciary duty to carry out their role responsibly.
