Possible Conflict of Interest in Voting?

[Guest Ryan Clark]

Our organization have recently been presented with a business offer and one of our board members divulged that he has a personal business relationship with the party presenting the offer and worked behind the scenes in constructing the proposed deal. There is also another situation where two other board members are friends with said party who would negotiate the deal if it is passed. Does this count as a conflict of interest and should their vote be counted?

[Rob Elsman]

Being "friends" does not, in itself, cause a conflict of interest. The acid test is whether the board member stands to improperly benefit from his dual roles. If he is double-dealing about something from which he will benefit in ways that other members will not, then he should refrain from exercising his right to vote on the matter. However, the presented facts do not, in my mind, establish a conflict of interest of this kind.

[Guest Ryan Clark]

On 4/17/2024 at 10:50 AM, Rob Elsman said:

Being "friends" does not, in itself, cause a conflict of interest. The acid test is whether the board member stands to improperly benefit from his dual roles. If he is double-dealing about something from which he will benefit in ways that other members will not, then he should refrain from exercising his right to vote on the matter. However, the presented facts do not, in my mind, establish a conflict of interest of this kind.

Thank you Ryan, for your swift reply. I wanted to add some clarification that the people who are “friends” with the person negotiating the deal actively sought them out for the deal without the knowledge/approval of the board. There has also been some insistence on their part as to why we should accept said offer, and refuse to share contract details regarding the manner until we vote. Also, the person on the board said that this business relationship opened up opportunities for him to get other business with them and other companies, so they do benefit in some way.  

[Guest Ryan Clark]

On 4/17/2024 at 11:15 AM, Guest Ryan Clark said:

Thank you Ryan, for your swift reply. I wanted to add some clarification that the people who are “friends” with the person negotiating the deal actively sought them out for the deal without the knowledge/approval of the board. There has also been some insistence on their part as to why we should accept said offer, and refuse to share contract details regarding the manner until we vote. Also, the person on the board said that this business relationship opened up opportunities for him to get other business with them and other companies, so they do benefit in some way.  

*Rob. My apologies. 

[Rob Elsman]

You will notice I did not say "benefit"; I actually said "improperly benefit". There is a world of difference between the two. So, I would think that a business arrangement that looks like other, similar such arrangements that are thought of as "arm's length" arrangements would not give rise to a conflict of interest, at least not in my mind.

[Atul Kapur]

On 4/17/2024 at 11:41 AM, Guest Ryan Clark said:

Does this count as a conflict of interest and should their vote be counted?

Bottom line is that RONR does not remove their right to vote even if they are in a conflict as RONR defines it - RONR only says they should not vote;  if they do vote, their vote must be counted.

You may want to look at any internal rules your organization has adopted regarding conflict of interest, including your own definition (which is likely broader than RONR's) and the restrictions on someone in conflict.

 

[Joshua Katz]

RONR does not contain all the niceties of corporate law on these matters. If your organization is incorporated, you may have to consider state law.