Conflicts of Interest

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Conflicts of Interest: Evaluating Outside Board of Director and Advisory Service Roles

Evaluating outside board of director service for your own organization’s employees begins with the underlying presumption that directors with board oversight responsibility have a “triad of fiduciary duty”: good faith, loyalty, and due care.[2] Public policy also generally asserts that directors protect the interests of their organization. This means they must refrain from doing anything that might injure or deprive it of profit or some advantage that a director could provide by virtue of her or his board service.[3] This unwritten rule therefore requires an undivided loyalty to the organization, meaning that the director has no conflict between that duty and self-interest.[4] “Self-interest” can and most likely will include personal income derived from employment at your company, which will also demand a duty of loyalty.

Recall that the definition of a conflict of interest pits the personal interest with the interests of another to whom one owes some duty. The tension that will result from the loyalty to one’s company or employer and the fiduciary duty assumed by serving on an organizational board of directors gives rise to the need to identify board service as a potential conflict of interest. The compliance program will not only need policies and disclosure forms, but also specific analysis of the inherent risks that materialize as a result of that tension. The simultaneous demand for loyalty requires a targeted assessment to determine whether the outside board service and employment creates too high a risk of an employee breaching a duty of loyalty to your organization.

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