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Old Mutual row puts conflicts of interest into the spotlight

09 July 2019 Parmi Natesan, CEO at Institute of Directors in Southern Africa (IoDSA)

The recent news around Old Mutual’s decision to terminate the contract of its CEO, Peter Moyo; and his response regarding the Chairman Trevor Manual, has once again put conflicts of interest into the spotlight. While not wanting to prejudge this particular issue, we are reminded that these are not simple matters.

Conflicts in the boardroom need to be carefully managed to ensure they do not put either the director or the organisation at risk—or create a negative public perception. And the fundamental key to managing conflicts of interest is open, full and candid disclosure and appropriate management.

That’s according to Parmi Natesan, CEO, Institute of Directors in Southern Africa (IoDSA), who explains that a conflict of interest arises when there is tension between competing interests, whether they are personal, financial or other. These conflicts might be real, potential or perceived; perceived conflicts can be as reputationally damaging as real ones and should also be managed.

Where conflicts are pervasive, handling them is simple: they should just be avoided rather than managed. For example, a director should not serve on the boards of two competing companies.

Other conflicts can be manageable because they are not as pervasive. “In the case where there is such a conflict, and the parties still want to work together, it is highly advisable to put comprehensive safeguards in place,” says Natesan.

These safeguards include identification and appropriate management of conflicts by the Chair and company secretary, as well as comprehensive and timely disclosure from the conflicted individuals themselves,” Natesan points out.

Directors have a duty to avoid or manage conflicts of interest. This, for example, requires directors with an interest in a matter to be discussed by the board, to declare that interest at first instance.

The declaration should include any material information known to the director, as well as disclosure of any observations or pertinent insights if requested to do so by other directors.

If a conflict is declared, the Chair should ensure that this is minuted, and then lead a discussion about the implications and steps needed to manage this conflict, in order to comply with all the relevant legal regulations as well as governance policies in play.

Where considered necessary, the conflicted individual should leave the meeting and take no further part in the discussion/decision relating to this matter.

There are consequences for failing to manage conflicts effectively, as she makes clear, which go beyond reputational damage. “Any decisions which flow from conflicted interests which weren’t managed may be regarded as void. This can lead to legal action and if a director relies on the business judgment rule to defend a decision, they should demonstrate that any conflicts of interest were appropriately managed,” she adds.

“The reality is that conflicts of interest are a fact of business life. Their existence doesn’t necessarily mean impropriety – but failing to declare and manage them means impropriety is likely to be strongly suspected. The consequences can be severe, and thus members of governing bodies should follow these steps to ensure that they and the organisation are protected,” Natesan concludes.

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