In this blog, we provide essential information to those looking at becoming non-executive directors to identify and manage conflicts of interest. Experienced NEDs may also welcome a refresher on their obligations.
Conflicts of interest are a matter of importance for non-executive directors.
Conflicts of interest can arise when a NED has a personal or financial interest in a matter that is being considered by the board. For example, if a NED has a financial interest in a company that is being considered for a contract by the board, this could create a conflict of interest. Similarly, if a NED has a personal relationship with an individual or company, it could be affected by a decision of the board.
Non-executive directors have a duty to maintain the integrity and independence of the board. They must ensure the board makes unbiased and objective decisions that are in the best interests of the company and its stakeholders.
There are a few steps that can be taken to address conflicts of interest in the boardroom.
Disclosure. NEDs must disclose to their board any potential conflicts of interest before they arise. This can be done through a formal process, such as filling out a disclosure form or stating any potential conflicts at the beginning of a board meeting.
Recusal. If a NED has a conflict of interest in a particular matter, it is best for them to recuse themselves from discussions and decision-making on that matter.
Management. In some cases, it may be possible to manage a conflict of interest through measures such as setting up a special committee or hiring an independent third party.
Communication. Open and transparent communication with the board and other stakeholders about potential conflicts of interest helps to build trust and ensures that all parties are aware of and understand the nature of the conflict.
Note that the approach to address conflicts of interest varies depending on the specific circumstances and the laws and regulations that apply to the company.
To deepen your understanding of managing conflicts of interest, we invite you to watch our webinar, featuring James Whitaker, corporate lawyer, and Sally Mayer, corporate secretary and non-executive director, complemented his insights with real life examples.
If you are new to the NED role, we recommend that you join the NED Accelerator® community. A module dedicated to conflicts of interest is included in the NED Accelerator® Programme curriculum.
Written by Elise Perraud, NEDonBoard COO
