If the Director sees a conflict coming up, she must obtain permission from the organization, with full disclosure of her interests and profitability of the encounter.
In real life, that usually means notifying the rest of the board of directors if you, or your spouse or family owns a part of a company, that the principal company is doing business with. This lets the other directors know that you are in a position to profit, even if only a small amount, and the Board then discusses what steps to take.
Generally, that would mean you would abstain from voting on that issue. It may mean doing business with another organization. Or it may lead to the Board voting, on behalf of the shareholders, that they understand and consent to the relationship, even with the understanding that the Board member profits in some way.
Want more? If you’re on the Board, or planning to be in your career, take a look at the FREE Board of Directors Essential Toolkit law videos — or, send them to all your new board members.
Click here for Part one of the Director series.
