Board of Directors Conflict of Interest Policy – Common Rules

board of directors conflict of interest policy

The creation of a good working environment depends to a large extent on the general policies that management adheres to in the company. This common policy should cover all aspects of working relationships, especially conflicts of interest policies. How the board of directors’ conflict of interest policy helps to normalize working relationships and what to do about it – we offer some simple guidelines.

Peculiarities of the policy regarding conflicts of interest

Conflicts of interest in a company may constitute a rather serious obstacle to the development of the company. Moreover, conflicts of interest do not just need to be managed, but must also be handled in a way that takes into account the law. It is also worth remembering that the conflict of interest policy is a formal document with many clauses and provisions which should be resorted to in case of unpleasant situations. It also contains a complete list of situations and actions that fall under the definition of a conflict of interest, as well as ways to resolve them without legal consequences for the company and the employee.

For a conflict of interest policy to be beneficial to the entire company, it needs to include as many aspects of company life as possible, including:

  • Written commitments from managers and employees that they will not conceal information about actual or potential conflicts of interest;
  • A practical guide for managers that will outline all the actions to take in the event of a conflict of interest;
  • The types and amounts of liability that employees will face if they conceal a conflict of interest;
  • Procedural documents to be signed by members of the conflict of interest committee.

Each company’s conflict of interest policy template may have its own individual provisions, but they must not go beyond the legal requirements.

What happens if a director has a conflict of interest: actions required

As with any other conflict situation, it is better to prevent conflicts of interest than to resolve them once they have arisen. This applies to both rank-and-file employees and company executives. This policy should be especially strict with respect to the director and other officers of the company. To prevent them from having a conflict of interest, several binding measures can be taken:

  • Avoiding conflicts of interest by any available methods;
  • A commitment not to take benefits from third parties;
  • A written commitment to immediately notify the conflict of interest committee and the appearance of a real or potential conflict of interest;
  • A statement of personal interest in various types of transactions, and more.

If a director of a company happens to have a conflict of interest – whether real or potential – you must immediately notify the conflict resolution committee and other board members. While the committee is reviewing the situation, the director can be removed from his or her duties until a final decision is made.

It is worth remembering that a director’s conflict of interest can tarnish the reputation of the entire company. Therefore, it is better to take measures that will help avoid such situations than to deal with the consequences later.