Psyc 231 Mod F CT assignment Leadership challenge BOD & CEO scenario

The Leadership Challenge: The BOD and CEO’s scenario

1. What are the potential ethical and conflict-of-interest issues arising from CEO involvement in

the selection of board members?

A conflict of interest occurs when a board member has multiple interests which may influence

the way in which they act or vote on a board. The specific risk inherent in conflicts of interest is

that the professional judgement or actions of a board member in relation to the company they

represent are influenced by a secondary interest, such as a personal financial interest, the

financial interests of family and friends, or the desire for personal advancement. As with all

risks, there are ways of mitigating the risk. A pecuniary interest is one in which the board

member has a direct financial involvement. A non-pecuniary interest represents no personal

financial gain for the board member. An actual or real conflict of interest arises in a situation

where financial or other considerations compromise an individual’s objectivity or ability to

perform his or her responsibilities to the company. Perceived or potential conflicts of interest

exist in situations where the board member, or their family or friends, has financial interests or

relationships with another individual or organization, which may result in his or her activities on

the board appearing to be biased against the company by that interest or relationship.

2. How can these issues be addressed?

The first step in handling conflicts of interest is to establish a register of interests. Each board

member should be required to detail what other pecuniary and non-pecuniary interests they have.

This may include directorships or work with other companies, or those of family and friends.

This will help the chair identify if an interest is likely to result in a conflict of interest. It should

be remembered that not all interests automatically result in a conflict. The register of interests

should be regularly reviewed and updated at least annually. It should be the responsibility of

each board member to identify if a conflict of interest is likely to occur. A well thought-out

agenda which details the subject matter to be discussed and decisions to be made is helpful to the

board member in deciding is a conflict of interest may arise. At the outset of each meeting, the

chair should ask the members if they would like to declare a conflict of interest. The board

member should state which agenda item the conflict relates to, and excuse themselves for that

portion of the meeting. If it becomes apparent during the meeting that a conflict will arise, the

board member should immediately inform the chair and excuse themselves for that portion of the

meeting. If a board member believes that another board member has a conflict of interest which

has not been declared, this should be tabled through the chair who will have ultimate

responsibility in deciding if a board member should excuse themselves from the meeting and

take no part in the decision-making process. If this happens, it should trigger a review of the

conflict of interest register.

Leadership and Human Relations (PSYC 231)