How to Manage Board-Related Conflicts of Interest
President-elect Donald Trump and his cabinet nominees aren’t the only ones who face conflicts of interest; association boards experience them too. A governance expert talks about how to handle them the right way.
When the CEO of ExxonMobil, the world’s largest publicly traded oil and gas company, was nominated last month to head up foreign affairs for the United States, there were lots of questions regarding conflicts of interest, which were most recently demonstrated during his confirmation hearing last week.
But by stepping down as CEO, answering hard questions, shedding stock shares, and more, the hope is that Rex Tillerson, if confirmed, will be as free from conflict as possible and can act on behalf of the president and the American people as secretary of state.
Associations experience conflict-of-interest dilemmas as well, most commonly on their boards. Maybe it’s a board member who provides training in her day job that competes with training or education programs offered by the association. Or perhaps it’s a board member who serves on the board of another association that offers a competitive certification program, said Jennifer Druliner, VP of governance at the U.S. Green Building Council.
“Conflicts of interest are not necessarily a problem, so long as they are properly disclosed and managed,” she said. “Having a conflict of interest shouldn’t preclude one from serving on a board, unless it were an ongoing conflict of such magnitude that affected one’s ability to carry out the fiduciary responsibility of a board member.”
One of the most important steps to managing conflicts of interest, according to Druliner, is for an association to establish a clear policy that board members understand and take seriously. In addition, it’s imperative for association CEOs to help create a culture of transparency.
“Education is also important, as is normalizing the disclosure of conflicts,” Druliner said. “I’d recommend an annual refresher on the topic, followed by a disclosure for the record in which all board members list their affiliations, including key professional responsibilities and roles on other boards.”
Druliner suggests beginning each board meeting by not only reviewing the agenda but also calling for the disclosure of any conflicts. “There may be no conflicts to declare most of the time, but a standing agenda item signals that conflicts can arise at any time, and that there is a process in place to address them when they do,” she said.
If a conflict does arise, Druliner said that that the affected board member should refrain from voting, motioning, or seconding on that matter—per the association’s policy. Meeting minutes should also reflect the conflict of interest.
On the board level, if a situation comes up where one member believes that a fellow member might have an undisclosed conflict of interest, a one-on-one conversation with that person should be the first step. “Sometimes, a lack of disclosure is a result of not properly understanding what constitutes a conflict, so simply raising the issue may help the director realize she or he needs to declare a conflict,” she said.
But if the conversation doesn’t go well, then that board member should feel no qualms in going to the board chair. “This is precisely why it’s important that the board have a clear conflict-of-interest policy, so that if concerns arise, all understand how to proceed,” Druliner said.
Donald Trump's pick for secretary of state, Rex Tillerson, has faced conflict-of-interest scrutiny over his leadership role at ExxonMobil. (Jonathan Ernst/Reuters)