Since this is the fifth blog in our series on managing conflicts of interest, hopefully you’ve got your process in place for employee disclosures and it’s running well. But now there’s another challenge: board members.

(If you haven’t seen the others, the first blog post, which focuses on scoping the program for success, can be found HERE.

The second blog post, which focuses on the tool you can use, can be found HERE.

The third, which focuses on mitigating disclosures relating to significant relationships, can be found HERE.

The fourth, which focuses on mitigating disclosures relating to finances can be found HERE.)

Board Members are Different

Board members have a very different risk profile from employees of the company.

First, board members have a fiduciary duty to the company enshrined in law. Nearly all countries proactively require board members to act in the best interest of the company and to recuse themselves when they are conflicted.

But board members are different than employees in other ways as well.

They are frequently chosen because of their relationships and company expertise. They may be highly politically connected – either with government or within industry.

Being on boards tends to lead to being asked to be on more boards. And many board seats, especially in public companies, are well remunerated, which can lead to conflicts as well.

Then there’s reporting.

If a board member sees unethical behavior, they are deeply unlikely to call the speak-up hotline. Rather, they are likely to go directly to the Chief Compliance Officer, General Counsel, or Chair of the Board.

Messaging to these individuals should be different than employees.

What Kinds of Conflict?

Board membership comes with similar, but not identical, conflict risk to employees.

Board members may have conflicts caused by significant relationships, such as pushing to have their child hired by the company or being married to someone working at a key supplier.

Board members can also have financial conflicts, such as being in the C-suite for a key customer the company.

Lastly, board members can have memberships on other boards that can cause problems, especially if those other companies are in a similar industry.

Tools for Disclosure

If you already have a platform for conflicts of interest disclosure, it may be possible to extend that service to board members.

Keep in mind that many board members won’t have @yourcompany.com email addresses, so you may need to ask your vendor whether they are able to include outsiders in your process flow.

If you haven’t obtained a technology solution, there are options (see Part II in this series for a detailed analysis and examples).

Disclosure of Other Board Positions

Board members should be asked about financial and significant relationships conflicts.

Many companies also require disclosure of other board positions.

Some companies limit disclosure requirements to paid board seats or only for-profit company board seats.

Disclosure of all board seats is best practice. If the board member is on the board of a non-profit that does not align with your company’s values, mission, or brand, it is important to know that.

Many companies also require board members to pro-actively seek approval or disclose (1) if/when they change jobs, and (2) if/when they join another board. That protects the company from finding out after the fact that the board member will need to recuse themselves constantly.

How to Handle It

Here are some common board member conflicts and how to deal with them effectively.

The Potential Problem

Supplier/Procurement

Your company’s board member owns, manages, or works at a company that is a supplier to your company.

Don’t… Don’t allow the board member to participate in the decision-making process for the product or service the other company is supplying, and don’t allow them to hear about pricing and terms of competitors.

Customer Relationships

Your company’s board member is an owner of, manager of, or has employment at a customer of your company.

Don’t… Don’t allow the board member advocate for or negotiate the terms of the account or learn about the pricing and terms of other similarly-situated customer relationships.

Competitor Employment

Your company’s board member is working at a competitor of your company.

Don’t… Don’t let this happen if at all possible. If this is being considered, make sure the whole board is trained on antitrust and confidential information management.

Stock Ownership

Your company’s employee owns any amount of stock in a private company, or a substantial amount of stock (1% – 5%) of a publicly-traded company that is a competitor, supplier to, or customer of, your company.

Don’t… Don’t rubber stamp this. Get details on the ownership and find out whether the board member has control or input on business decisions. Consider additional training.

Hiring

The board member recommends the hiring of a person with whom they have a significant relationship.

Don’t… Don’t let a board member with a significant relationship with a potential employee participate in the hiring or interviewing process of that person.

Procurement

Choosing a vendor or service provider owned by, managed by, or employing someone with whom the board members have a significant relationship.

Don’t… Don’t let anyone with a significant relationship evaluate a vendor or service provider if the person with whom they have that relationship owns, manages, or is an employee of the vendor or service provider. If possible, do not disclose the pricing or terms of competitors.

Confidential Information

The other member of the significant relationship hears or can utilize confidential information, especially material information that could lead to insider trading.

Don’t… Don’t let this go by without training on antitrust, insider trading, and confidentiality.

Conflicts disclosure and management can be tricky. But with a good plan, it can be done well.

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