Conflict of interest arises whenever the personal or professional interests of a board member are potentially at odds with the best interests of the Company. Such conflicts are common: A board member sells goods from his personal enterprise to the company or performs professional services for the company, or proposes that a relative or friend be considered for a staff position. Such transactions are perfectly acceptable if they benefit the organization and if the director made the decisions in an objective and informed manner.
There are situations where a director of a public company sells his personal investments at a high price to the public company and thereby makes a profit for himself. Such instances result in the loss of public confidence and a damaged reputation. However, the SEC does not see these as illegal or inappropriate. Boards should take steps to avoid even the appearance of impropriety. These steps may include:
* Adopting a conflict-of-interest policy that prohibits or limits business transactions with board members and requires board members to disclose potential conflicts.
* Disclosing conflicts when they occur so that board members who are voting on a decision are aware that another member’s interests are being affected.
* Requiring board members to withdraw from decisions that present a potential conflict and excuse themselves from the board meeting.
* Establishing procedures, such as competitive bids, that ensure that the organization is receiving fair value in the transaction.