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This is exactly why I'm confused. I would also like this clarified.

ghaff 5y ago
I can't imagine any BoD would be cool with an executive responsible for signing deals getting essentially paid for signing those deals given what a clear conflict of interest that would be. And the BoD itself would probably be found to be failing their fiduciary responsibility under those circumstances.
- spenczar5 5y ago
  I could imagine some slippier cases. A lot of successful startup executives have a bunch of money and invest it in startups. They (of course) pick ones that they think will do a good job in their space. It isn't that crazy to imagine them recommending using a startup they've invested in, and it's also possible to imagine them making a convincing case to a board that the startup is the best option available. They still can profit massively from that, though, so it's still kind of messy territory.
  - ghaff 5y ago
    I don't really disagree. Just because there's a potential conflict of interest doesn't mean there's corruption. And the further you get from large companies with internal audit teams and established procurement practices the fewer controls there are the murkier things can get. Per the peer comment, if you don't disclose the conflict, and let the BoD decide what to do in light of that conflict, then you're into the realm of looking like you're hiding something.
    - jsmith99 5y ago
      It's the principal/agent problem. If the director is an agent of the shareholders then conflict of interest IS corruption unless you have some sort of safeguard to stop it affecting your behaviour.
  - jsmith99 5y ago
    That's not a grey area at all. If you are a director and you are pushing your board to drive business to a company you have a significant stake in, you MUST disclose that. A grey area would be more like whether you should offer to leave the meeting while they discuss the proposal.
    - spenczar5 5y ago
      Yep, I agree. I was responding to the comment from ghaff that they "can't imagine any BoD would be cool" with a deal getting signed in a clear conflict of interest. I can imagine a board going along with it. Of course, the conflict definitely needs to be disclosed!
      - ghaff 5y ago
        Oh I agree. I was really talking about the kickback case as in here. There are other types of conflicts which happen and may be fine so long as the person in question isn't making the decision on their own and, as you say, has disclosed it.
- stadium 5y ago
  What are the disclosure laws if an exec has a stake in a public or private company, and there is an actual or potential vendor relationship with that company? Are there even laws for this, or is it more about company policies set by the BoD?
  - elliekelly 5y ago
    Usually disclose and recuse. You’re conflicted, so you shouldn’t make the decision or be involved in making the decision, but if it’s the best vendor for the company the company isn’t prohibited from using their services. Most large companies will have a policy for declaring and managing that type of conflict. In addition to generic criminal laws against fraud and bribery there’s also honest services fraud (which I’ve mentioned elsewhere in this thread) which boils down to depriving someone to whom you owe a duty of the right to your honest services.

I can't imagine any BoD would be cool with an executive responsible for signing deals getting essentially paid for signing those deals given what a clear conflict of interest that would be. And the BoD itself would probably be found to be failing their fiduciary responsibility under those circumstances.

spenczar5 5y ago
I could imagine some slippier cases. A lot of successful startup executives have a bunch of money and invest it in startups. They (of course) pick ones that they think will do a good job in their space. It isn't that crazy to imagine them recommending using a startup they've invested in, and it's also possible to imagine them making a convincing case to a board that the startup is the best option available. They still can profit massively from that, though, so it's still kind of messy territory.
- ghaff 5y ago
  I don't really disagree. Just because there's a potential conflict of interest doesn't mean there's corruption. And the further you get from large companies with internal audit teams and established procurement practices the fewer controls there are the murkier things can get. Per the peer comment, if you don't disclose the conflict, and let the BoD decide what to do in light of that conflict, then you're into the realm of looking like you're hiding something.
  - jsmith99 5y ago
    It's the principal/agent problem. If the director is an agent of the shareholders then conflict of interest IS corruption unless you have some sort of safeguard to stop it affecting your behaviour.
- jsmith99 5y ago
  That's not a grey area at all. If you are a director and you are pushing your board to drive business to a company you have a significant stake in, you MUST disclose that. A grey area would be more like whether you should offer to leave the meeting while they discuss the proposal.
  - spenczar5 5y ago
    Yep, I agree. I was responding to the comment from ghaff that they "can't imagine any BoD would be cool" with a deal getting signed in a clear conflict of interest. I can imagine a board going along with it. Of course, the conflict definitely needs to be disclosed!
    - ghaff 5y ago
      Oh I agree. I was really talking about the kickback case as in here. There are other types of conflicts which happen and may be fine so long as the person in question isn't making the decision on their own and, as you say, has disclosed it.
stadium 5y ago
What are the disclosure laws if an exec has a stake in a public or private company, and there is an actual or potential vendor relationship with that company? Are there even laws for this, or is it more about company policies set by the BoD?
- elliekelly 5y ago
  Usually disclose and recuse. You’re conflicted, so you shouldn’t make the decision or be involved in making the decision, but if it’s the best vendor for the company the company isn’t prohibited from using their services. Most large companies will have a policy for declaring and managing that type of conflict. In addition to generic criminal laws against fraud and bribery there’s also honest services fraud (which I’ve mentioned elsewhere in this thread) which boils down to depriving someone to whom you owe a duty of the right to your honest services.