Conflicts of interest

Conflicts of interest
A simple pre-requisite for all board members is that they must rigorously and regularly check their own and each other’s interests for possible conflicts.  Their organisation's register entries must accurately reflect the current and proposed nature of the interest. While directors with an interest can often usefully contribute to discussions, provided that their colleagues are fully aware of the nature and extent of their interest, sometimes conflicts are of such an unequivocal nature that no participation is possible. Furthermore, directors need to consider that where an insuperable conflict exists, and where their board knowledge would benefit a competing interest, then whether such conflict should be entertained at all.

Echoes of conflicts
Do you recall these two examples? First, Lawrence Small, the top official at the venerable Smithsonian Institute who resigned last year after irregularities were found in his expenses. In particular, he had charged more than $US1million to use his home for official functions.  Second, Paul Wolfowitz, the corruption-fighting World Bank president who was forced to resign because he personally intervened in ensuring his girlfriend received a large pay rise and promotion in a secondment from the US State Department. The moral? Perhaps, like poor driving, it is always easier to spot others’ conflicts of interests than your own.

From Russia with love
Russia’s surging economy has seen a commensurate surge in the appetite of Russian companies for overseas assets. Unsurprisingly perhaps, Initial Public Offerings in New York, subject to Sarbanes Oxley, have not found favour with Russian companies. Instead, the Russians have favoured the London Stock Exchange. The British Financial Services Authority has announced its intention to make rules stricter for foreign companies conducting IPOs saying that the liberal requirements for foreign companies trading on the LSE raise investor risk. Is there an argument here that rules-based regulation is best suited to developing markets while principles-based compliance is better suited for mature and developed environments?

Check out any time but never leave
The Institute of Directors handles a variety of member queries in the course of the working week and is seldom surprised at their nature. However, a recent query will remain in the memory banks for some time. We were asked to peruse an employment “contract” to be offered to an independent director. The contract contained this clause: “The liability of the independent director to the company shall not, under any circumstances be a personal liability but shall be limited to the assets of the company available to it in the normal course of administration of the company.” We think this is an excellent piece of drafting which at a stroke removes any concerns a prospective director might have over possible issues of personal liability. Such an action is inconsistent with the Companies Act.