Business Degree Certification Practice Test

Which duty requires corporate officers and directors to demonstrate loyalty to the corporation over personal interests?

1. Duty of care

2. Duty of loyalty

3. Fiduciary duty

4. Business judgment duty

The correct answer is: Fiduciary duty

The duty that specifically requires corporate officers and directors to prioritize the interests of the corporation above their own personal interests is known as the duty of loyalty. This duty mandates that individuals in positions of authority must not engage in self-dealing or act in a way that compromises the interests of the corporation for their personal gain. This principle is fundamental in corporate governance as it seeks to ensure that the decisions made by officers and directors align with the best interests of the shareholders and the corporation itself, fostering trust and integrity in leadership. By upholding the duty of loyalty, corporate leaders are expected to avoid conflicts of interest and prioritize the welfare of the organization they serve, thereby protecting stakeholders and promoting long-term success. Although fiduciary duty encompasses various responsibilities that include both the duty of care and the duty of loyalty, it is the specific duty of loyalty that highlights the requirement to prioritize the corporation's interests over personal benefits. The other options, such as duty of care and business judgment duty, pertain to different aspects of corporate governance and decision-making but do not specifically address the need to prioritize the corporation's interests in the face of personal temptations.