What is Self Dealing and How Can You Avoid Doing It?

As the owner of a company, or a higher level officer or shareholder, you have certain obligations to your company. You are a fiduciary to the company, and owe the company certain duties, including duties of loyalty, and to put the interests of the company ahead of your own, personal interests.

Self-Dealing

This is where self-dealing comes in. Self-dealing is the act of converting a company asset, opportunity, advantage, or property, to your own, personal use, without the knowledge, consent or permission of the company. Self-dealing is one of the most serious violations of one’s fiduciary duties that there are, and in extreme cases, can even lead to criminal liability.

How It Happens

Self-dealing can happen innocently (accidentally), but it can also happen intentionally.

Often, a higher level corporate executive, will use company assets, like a company car, for the executive’s personal use. Certainly, a now and then usage of company property may not amount to self-dealing, but imagine that a corporate officer convinces the board that this company car is broken down and needs replacing. The board agrees and authorizes the purchase of a new company car. Turns out, the old one was just fine, you just needed that old one as an extra car for your own, home, personal use.

Often, self-dealing doesn’t benefit the executive, but may benefit the executive’s personal family or friends. It can even happen with charities—ice cream maker Ben and Jerry’s got in trouble a few years back, when company funds were used to help a charity that a director had an association with.

Family self-dealing often happens with company contracts, where a contract will be awarded to a family member of a higher level executive (thus obviously personally benefiting the executive), when other competitors may have been better for the company to use—perhaps they were cheaper, or more qualified. The executive has derived a personal benefit at a cost to the company.

Sometimes, a corporate executive will see a business opportunity, but instead of presenting the opportunity to the company, the executive takes it for him or herself—perhaps she is looking to start a “side venture,” or looking to leave the current company and start a new one, and this business opportunity can be advantageous to these endeavors.

The company has lost out on a valuable opportunity, so that the executive can benefit personally.

Avoiding Self Dealing

One good way to avoid accidental self-dealing, is to know what associations all higher level executives have, with other companies. Do they own other companies? Do they serve as shareholders or directors or managers of other companies? Do they have family members that own or have a financial interest in other companies?

If so, you should see if those other companies are competitors of yours—but even if not, having an inventory of who has connections to which outside companies, can help avoid conflicts and accidental self-dealing.

Are you being accused of breaching a fiduciary duty at work, or do you think someone has breached one towards you? Call our Fort Lauderdale business litigation lawyers at Sweeney Law P.A. at 954-440-3993 for help.

Sources:

investopedia.com/terms/s/self-dealing.asp#:~:text=Self%2Ddealing%20is%20when%20a,for%20those%20who%20commit%20it.

nypost.com/2021/08/28/head-of-ben-jerrys-board-accused-of-alleged-self-dealing/