The Handbook of Board Governance, 2nd Edition

APPENDIX 5Model Conflict of Interest Policy for Directors

Richard Leblanc CMC, BSc, MBA, LLB, JD, LLM, PhD

Professor of Governance, Law & Ethics, and Director, Master of Financial

Accountability Program, York University; and Independent Governance Advisor

Introduction

Conflict-seeking directors can cause enormous damage to a board.

There is considerable deference by regulators for boards governing their own conflict of interest situations. This means that, many times, boards may not have adequate policies or internal controls in place to identify, disclose and manage conflicts of interest.

It is not inappropriate or imprudent to assume self-interest absent internal controls, even for directors.

A director acting with a conflict of interest puts the entire board and the company at risk. Investors or other stakeholders can litigate for breach of fiduciary duty. Government regulators and tax authorities can and do also act. The distraction and damage to the company, to director reputations, and to other directors who knew of the conflict and chose not to act, can be significant.

Many times, without a robust conflict of policy, legacy conflicts continue, a slippery slope ensues, and conflicts become no-fly zones for even discussion, especially “soft” conflicts based on social relatedness, gifts, favors, interlocks, other advantage and the like.

If a director is looking to advantage himself or herself, then that director does not belong on a board. That director should be a stakeholder ...