Dealing with conflicts of interest: a primer for boards of directors
By Paul Russell, AdvocateDaily.com Contributor
Though the term “conflict of interest” can have a negative connotation, board members should not be afraid to explore whether they are in such a position, Burlington compliance lawyer Cathi Mietkiewicz tells AdvocateDaily.com.
“There is a perception that declaring a conflict is problematic or embarrassing, says Mietkiewicz, principal of Mietkiewicz Law. “That is the wrong way to look at it, as having the conflict is not the problem — it’s all about how you deal with it.”
She offers these following five tips on how to navigate this issue.
Don’t fear a conflict. It’s easy to understand why some board members might be hesitant to admit to a conflict of interest, says Mietkiewicz, since the term itself evokes a negative image. “After all, the word ‘conflict’ is right there in the phrase,” she says.
However, Mietkiewicz says having a conflict is not something to be embarrassed about since it can be the result of many factors. “It is only a bad thing if you don’t deal with it appropriately.”
You must declare. Declaring a conflict of interest is not optional, she says. “It is a fiduciary responsibility of all board members.”
In most cases, Mietkiewicz says board members can verbally declare their conflict of interest, then leave the meeting, with their absence recorded in the meeting’s minutes.
It is important to note that board members do not have to state what their conflict is, she says.
“Sometimes that is the best thing to do, since it may influence other board members if they know the nature of your conflict,” Mietkiewicz says.
It is not always apparent. The most obvious conflict of interest is when those in a position of authority in an organization are involved in a decision that impacts another organization in which they have a financial interest, she says.
Mietkiewicz says there are many more less-obvious conflicts of interest, such as when a decision may benefit board members in non-financial ways. She gives the example of a profession’s regulatory board, which usually includes people working within that industry.
“In certain situations, board members will have to declare a conflict of interest, if the board’s decision benefits their practice,” Mietkiewicz says.
Even if there is just a perception that a board member has one, it has to be dealt with in the same way as a real conflict of interest,” she says.
While each situation has to be judged on its own merits, Mietkiewicz says there is an effective method to determine these issues in any situation. That is: “How would this look to a reasonable person on the outside.”
It’s not just your decision. Even if a board member doesn’t declare a conflict, Mietkiewicz says other directors have a fiduciary responsibility to speak up, if they are aware of circumstances that affect other board members.
Those who are unsure if they have a conflict can ask the board chair for guidance, she says, or the whole board can discuss the issue.
“If the majority of board members agree you are in conflict, you have to step out of the meeting,” Mietkiewicz says. “The most important thing is to raise the issue, and then let the board sort out the best way to deal with it.”
You must leave the room. Mietkiewicz says any board member with a conflict of interest must immediately leave the meeting.
“It is not enough that you leave just before the vote, as you cannot influence the discussion in any way,” she says. “You do not want the board decisions to be questioned by outside observers, and removing yourself ensures that.
“If the person with a conflict of interest is sitting at the table, other board members may be more guarded in their comments,” Mietkiewicz says. “That could prohibit frank and open discussion on an issue.”