Managing conflicts of interest properly protects your business and keeps you on the right side of your legal duties as a director. Here’s how to do it right.
Step 1: Spot the conflict
The first job is recognising when a conflict of interest exists. This includes actual conflicts and situations that might just look like a conflict to others. Once you’ve spotted one, you need to deal with it properly.
Step 2: Declare it
If you’ve identified a conflict of interest, you must formally declare it. This isn’t something you mention over coffee – it needs to be officially recorded.
The best place to do this is at your board meeting. Every board meeting should include conflicts of interest as a standard agenda item, even if there’s nothing to declare that day.
Making this a regular agenda item keeps it front of mind for all directors. It encourages everyone to think ahead and spot potential conflicts before they become problems.
Step 3: Decide what to do
Once a conflict is declared, the board discusses it openly and decides how serious it is.
If the risk to the business is low, you might simply note it and keep an eye on things. If the risk is high, you might need to remove the conflict entirely – for example, by having the director step back from a particular decision.
There are various actions you can take depending on the situation. One important rule: if the conflict affects a director who’s at the meeting, they shouldn’t take part in the decision about how to handle it. They can’t be objective about their own interests.
Step 4: Record everything
Good record-keeping is essential. Your meeting minutes should clearly show:
- What conflicts were identified
- What was discussed
- What action was decided
- What the outcome was
This creates a clear audit trail showing how you’ve managed conflicts properly. It’s useful if you ever need to demonstrate good governance, and it gives your advisers the background information they need.
Remember, some conflicts need to be disclosed in your annual accounts, and others might have legal implications that need professional advice.
Why it matters
Having a solid process for managing conflicts of interest helps you meet your legal duties as a director. But it also protects both you personally and your business. When conflicts are managed well, you can focus on what really matters – making your company successful.
Governance360’s platform includes an integrated register for tracking declarations of interest, and the virtual meeting function makes it easy to record these discussions properly, wherever your directors are based.
Want to know more about what conflicts of interest actually are? Read our blog: ‘Running a business: what are declarations of interest?’