High Performance Boards, 2nd Edition

CHAPTER 13The Four Tiers of Conflicts of Interest^*

Addressing conflicts of interest with integrity is at the heart of the personal responsibilities of a leading board member. Although to some degree ever present, such conflicts can be dealt with efficiently and with awareness. Mapping them, accompanied by a personal (or public) register, can certainly help. We can distinguish four tiers of conflicts of interest (see Figure 13.1).

A tier-I conflict is an actual or potential conflict between a board member and the company. The concept is straightforward: a director should not take advantage of his or her position. As the key decision-makers within the organisation, board members should act in the interest of important stakeholders, whether the company's owners or society at large, and not in their own. Major conflicts of interest could include, but are not restricted to, salaries and perks, misappropriation of company assets, self-dealing, appropriating corporate opportunities, insider trading, and neglecting board work. All directors are expected to act ethically at all times, promptly declare any material facts or potential conflicts of interest and take appropriate corrective action.

Tier-II conflicts arise when a board member's duty of loyalty to stakeholders or the company is compromised. This would happen when certain board members exercise influence over the others through compensation, favours, a relationship, or psychological manipulation. Even though some directors ...