Directors told to declare conflicts
PERSONAL RELATIONSHIPS between corporate directors should be made known in the interest of good corporate governance.
This recommendation comes from academic director of the Directors Education Programme (Canada), Richard Powers, who was in Barbados yesterday for a workshop on corporate governance hosted by Certified Management Accountants.
Speaking at Hilton Barbados, Powers said that while directors on a board should be independent according to the Sarbanes-Oxley Act, relationships were inevitable in small societies like Barbados.
The University of Toronto professor said interlocking directorships – when directors sit on the boards of different companies together – broke down the objectivity of decision-making. He noted that such directors often developed friendships and when one put a motion on the table, he knew he could count on his friend’s support.
“When the average size of a board is between nine and 12, a voting bloc of two can have a significant influence. “Good governance practices tend to migrate from one board to another but the corollary is also true; poor governance practices tend to migrate from one board to another as well,” he said.
Powers added that directors must be upfront about conflicts of interest.
“You have to declare the conflict. Do not participate in the discussion,” he said, noting that the board member should also leave the room since other directors may be hesitant to ask “some of the tough questions if he’s there”.
He noted that the director’s absence must be recorded in the minutes in order to ensure that his reputation was protected and the decision-making process was fully transparent.