Conflicts of Interest are No Good for Boards, Business

Lora Bentley

How a board of directors should be selected is always up for debate. The requirements always need to be tweaked a bit depending on the company's circumstances, or the current regulatory environment in a company's target market, or both.


Already this month I've written about boards that are proactively adjusting to regulatory changes they see coming down the pike. Some have rules requiring directors who don't garner a majority shareholder vote to step down. Most limit the number of boards on which their directors can serve, and several also have term limits for their members, for instance.


Regardless of the tweaks made to board membership requirements to adjust to changing times, a few characteristics of a corporate director are more or less constant. Ironfire Capital's Eric Jackson outlined them this summer. For the most part, I agree with him.


Jackson's three essentials for corporate directors are independence, personal investment and time. They must be independent enough not to simply rubberstamp management's suggestions, they must have personally invested in the company (beyond found cash) and they must have sufficient time to devote to their duties as directors. He's right on point here. However, I would add a fourth requirement: a prohibition against any conflict of interest.


Actually, some may simply see it as an element of the independence that tops Jackson's list, and some may assume it's already a given. Even so, a reminder is warranted. Google lost a board member this week due to such conflict. The only question I have is why Levinson waited until federal authorities were investigating antitrust issues before he stepped down.

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