Officers and directors owe a fiduciary duty to the company they are appointed too. Simply stated, this means that Directors and Officers of the company must act in the best interests of the company at all times.
Under the Companies Act 2014 the director’s fiduciary duties have been codified for the first time. The 8 fiduciary duties of a director owed to the company as listed in the Act are:
A conflict of interests arises whenever an officer or director places a competing interest over the best interests of the company. Competing interests are usually business, personal, financial, or family related.
What could have been done to avoid a conflict of interest?
Conflict of interest policies should be included in the Company’s Corporate Governance policy document, but conflict of interest policies are more effective if the company requires all its officers, directors, and employees to review and sign a new conflict of interest policy each year. The conflict of interest policy should provide a concrete definition of what conduct creates a conflict of interest, thus enabling the Directors, Officers and staff to identify potential conflicted situations. The policy should require the conflicted officer or director to fully disclose all facts regarding the conflict to the board. Finally, the policy should provide a procedure for minimizing or eliminating the conflict of interest.
This is usually done by excluding the Directors or Officers from the decision making process that involves the conflict.
Full disclosure and the exclusion of the conflicted Director or Officer from the decision making process puts the interests of the company first and foremost and will prevent a conflict of interest arising.
Deirdre McDermott is Audit Director and specialises in providing audit and accounting services to a wide range of clients. Contact Deirdre to find out more about Fiduciary Duties or about our accounting and tax services.
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