How to manage conflicts of interests in a business

Managing Conflicts can be hard.  Don't hide, manage them effectively
Part of complying with the legal responsibilities of being a director is managing conflicts of interest. They are important to identify as they affect the company’s ability to operate, its reputation and ultimately its growth, but once identified how do you manage them?

The first step is relatively simple and involves identifying the conflict of interest (to find out more about how to identify conflicts of interest you can read our blog here).

If as a director you identify a conflict (or even the perceived conflict, again see the previous blog) it is then your responsibility to have an established protocol in place so you can manage it properly.

 

Declaring a conflict of interest

If you have identified a conflict of interest, then you have to say so; not simply mention in passing on your coffee break either but actually record your declaration.

This can and should be done at your meeting of directors, or board meeting. In fact, every meeting of directors should include an upfront agenda item on conflicts of interest, so they can be discussed in the context of the other matters of business.

By having this as a standing item at every meeting, whether there are conflicts of interest identified or not, you actively lead your directors in always keeping this in the forefront of their mind – being prepared and looking for potential conflicts of interest enable you to protect and guide your business.

 

Deciding what action to take

The purpose of declaring a conflict of interest at a meeting of directors is so that it can be openly discussed. A this point it is up to the directors to assess the level of risk that the conflict of interest presents to the business, and therefore what action should be taken.

If the risk to the business is low, it can be noted, and action can be taken to check the potential conflict. If the risk is high, directors may take the decision to remove the conflict entirely.

There are a variety of actions that can be considered or taken (more in-depth detail can be found about this in our director training). Of course, if the conflict of interest affects a director who is at the meeting, virtually or in person, they should not be able to contribute to the decisions being made, as they cannot remain objective, although this is not always the case.

 

Recording your actions

As we mentioned earlier, it is good practice to have conflicts of interest as a standing agenda item; it ensures you are regularly discussing areas of conflict and risk. However, as director by including it you are also ensuring a full and thorough record is kept for your business.

Minutes of meetings should have clear and complete details of the conflicts of interest identified, and any discussion, action, and outcome recorded for complete reference. This is not only to demonstrate how conflicts of interest have been managed, but also to provide clear audit trails should the business require them.

It is important too to remember that while benefits to directors, members of their family etc are nearly always disclosed in end of year accounts, some situations may fall under other legal or corporate legislation for which you may need professional advice, and by recording this you can provide advisors with background and relevant contextual information.

The best way to manage conflicts of interest as a director is to have a robust protocol in place. By doing so you are fulfilling your responsibilities as director: declaring, recording, taking appropriate action and keeping abreast of other legal requirements, but you are also actively protecting both you and your business, allowing yourself to focus on making your company a success.


Read our blog 'Running a business; what are conflicts of interest?'.

Find out how Governance360 can help you manage conflicts of interest with its integrated register and virtual meeting function here.