Conflict of Interest and Governance

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.

Advertisements

About surenraj

“Views expressed are my own”
This entry was posted in Governance and tagged . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s