Corporate Governance

Conflict of Interest Policy – Role of the Company Secretary

The company secretary has become the chief advisor on governance to the board. It is only natural, then, that the company secretary play a central role in determining the policy for a key governance issue like Conflict of Interest.

“The Australian company secretary holds a unique governance position due to his/her liaison with the chair and the full board of directors; given that the board (not senior management) has the power to remove them from office on a majority vote, “explains Robyn Trubshaw, in her 2018 doctoral study of the role of the Australian company secretaries on contemporary boards of directors. Clearly this positions the company secretary to act on fraught issues like Conflict of Interest as he/she is safe from influence by individual directors or members of the management team.

The company secretary has a similar advantaged position with regard to Conflict of Interest, as Governance New Zealand points out:

“The company secretary occupies a unique position in most organisations. A key point of contact for the chairman, as well as a central member of the senior management team, the company secretary bridges the gap between the boardroom and the executive, with privileged access to both.”

With the help of the company secretary, the board must elaborate a policy for Conflict of Interest, because this is the most effective way to manage this most complex issue.

“One of the company secretary’s principal duties is to ensure the proper exercise of the board’s fiduciary duties,” writes Paul Marcela, of  the Governance Partners Group. Managing Conflict of Interest is, in fact, a major fiduciary duty for any board of directors.

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What is Conflict of Interest?

The basic concept of Conflict of Interest is simple, but, as one legal expert points out, it is “one of the most elusive to apply in all common law.” The company secretary must gain expertise in its application.

“The fiduciary – the service provider – holds the ‘legal title’ to entrusted property and power. The entrustor – the true owner – holds the ‘beneficial ownership’ of the property and power. The courts protect the beneficial owner from violations by the fiduciary, whose position of dominance and control over some aspect of the life or property of the beneficiary makes it essential that he/she put the beneficiary’s interests ahead of his or her own interest. In these situations, the fiduciary is held to a particularly high standard of behaviour,” the expert explains.

This is the basis of the conflict of interest concept – it is inherent in the position of board members – fiduciaries for the company, and by extension its stakeholders – that they must not allow their own personal interests to interfere with those of the company they serve.

“But secondary interests can be many: They may include not only financial gain but also the desire for professional advancement, recognition for personal achievement, and favours to friends and family or to students and colleagues,” the expert continues So the range of potential conflict is great – something as simple as a statement to the press, viewed in a certain light, could be seen as self-promotion and therefore based on personal interest.

Further, it’s not just a question of primary interest being compromised. “Rather, it is a set of circumstances or relationships that create or increase the risk that the primary interests will be neglected as a result of the pursuit of secondary interests. A conflict of interest exists whether or not a particular individual or institution is actually influenced by the secondary interest. Under certain conditions there is a risk that professional judgment may be influenced more by secondary interests than by primary interests – this is also conflict of interest.”

Company Secretary must bring expertise to policy creation

By drafting the corporate conflict-of-interest policy, the company secretary draws a line in the sand, making sure that everyone at the company from board members to workers knows exactly what is meant. Too often, there is no clear demarcation of what behaviours to look for, and this is when corporate culture can reinforce poor choices instead of good ones.

The company secretary, working with the board to frame a conflict-of-interest policy, should make certain that there is a clear explanation of conflict of interest, actual or simply at  risk, and that procedures are in place so that conflict of interest (even if just potential) can be quickly dispatched. Typically, such a policy would include rules on accepting gifts from clients, customers or suppliers, use of company property, etc.

Most important is the rule that disclosure of potential conflict of interest as soon as they arise – the board members must state the conflict to the board as a whole, and then ask for recommended actions if needed. And there should be a clearly stated penalty for non-disclosure.

Working with board members at meetings on complex topics like Conflict of Interest can be greatly facilitated for the Company Secretary with a Modern Governance approach – please see the Diligent whitepaper “10 Ways to Run More Effective Board Meetings.”

Diligent Governance Cloud enables effective management of Conflict of Interest

Good governance begins with board management software by Diligent Corporation, which aids the company secretary in supporting the board’s fiduciary duties.

The Conflict of Interest module in the Governance Cloud will provide everything that the company secretary needs in order to provide the right questions to board members on this issue, to discuss this sensitive issue in a secure environment, and then to analyse the responses of board members on this subject.

But Diligent Boards is much more: the base program for agendas and board meeting planning. The platform offers state-of-the-art security so there’s no worry over cybercriminal activity. Diligent Boards integrates fully with all the software solutions that comprise Governance Cloud, a complete ecosystem of digital governance solutions. With fully integrated software solutions for meeting minutes, secure messaging tools, board self-assessments, voting, nominations, virtual data rooms and entity management, board directors can manage issues like conflict of interests using one, highly secure platform.

Diligent knows how important convenience is to board directors, so the software designers developed applications where board directors can access all the tools using their tablets and cell phones, in addition to their laptops. Diligent also offers top-notch customer service 24/7.

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