3 minute read 11 Jan 2019
ey-roads-converge-in-city

How industry convergence blurs the line on boardroom conflicts of interest

By

Sharon Sutherland

EY Global Center for Board Matters Leader and Area Program Management Leader

Global mindset. Power through diversity. Art lover. Intellectually curious. Traveler. Legacy matters. Passionate about learning initiatives.

3 minute read 11 Jan 2019

Board directors with a portfolio of positions may find themselves caught among organizations which are now in direct competition as industries converge.

In the race to adapt and stay relevant, industry lines are being increasingly blurred. Social media companies are becoming live entertainment broadcasters, traditional car manufacturers are transforming into on-demand service companies and telecom companies are leveraging huge consumer bases, capital and data, to disrupt the banking sector.

In that context, board directors, who often have a portfolio of board positions, may increasingly find themselves caught among organizations previously in different traditional industries that are now in direct competition.1

Pre-dating the rise of the internet, industry shifts have long been a feature of economic evolution, but today, change is happening at a more dynamic pace and in increasingly unexpected ways. Board directors, therefore, need to keep a watching brief to the possible implications.

Implications of conflicting interests

With recent cases in the news of newly competitive companies’ board members stepping down citing possible conflicts of interest, what discussions should be taking place in the boardroom to make sure that such conflicts are identified early and dealt with as effectively as possible?

Most organizations have a set of policies and tools for monitoring the competitive landscape and disclosing director conflicts of interest, to ensure that all directors are properly aligned with the interests of the organization. In today’s superfluid market, boards should monitor and enforce these processes more frequently than ever before. Cross-holdings, partnerships, acquisitions and dispersed ownership, all complicate a dynamic ecosystem. Directors must therefore ensure they keep an up-to-date list of their affiliations and declare any conflicts of interest, immediately.

When having discussions about competitive trends and developments in the market, board members should make sure that, on an ongoing basis, they are considering:

  • Any potential conflicts that may be emerging, whether due to industry convergence, M&A transactions, or otherwise
  • What the implications are, if any, for their own status as a director

Corporate secretaries or general counsels are more often than not the facilitators of monitoring director independence and conflicts of interest.  

Corporate secretaries or general counsels are more often than not the facilitators of monitoring director independence and conflicts of interest.

Equally, they frequently play a key role in managing current peer and competitor lists and, as a consequence, can assist the board to navigate the complex landscape. Maximizing all resources at the board’s disposal for scanning competitors, not only for strategic intelligence but also for considering boardroom independence, is key to identifying potential conflicts before they arise.

Questions for the board to consider

  • What are the methods and how frequently are board members assessing their own status in terms of conflicts of interest and independence, and is their analysis sufficiently detailed and evidenced?
  • Who is conducting an analysis of the competitive landscape to monitor the organizations’ movements across sectors and how often? Does the board challenge the analysis to ensure it is accurate and complete?
  • Are board members keeping up-to-date with their organizations’ related policies and utilizing the tools available to ensure they are sufficiently aware of their director duties and responsibilities in relation to disclosing potential conflicts of interest? If not, how will this be remedied?
  • How proactively does the board engage with their corporate secretary or general counsel and how effective is the engagement?
  • Show article references

    1. According to Spencer Stuart research, 65% of S&P 500 independent directors have two or more public board affiliations and 11% have four or more. Based on the same research across a range of countries, the average number of quoted boards a director sits on ranges from around 1.1 to 3.4.

Summary

In today’s constantly changing landscape, board directors must be diligent in assessing and declaring their conflicts of interest while maintaining their independence.

About this article

By

Sharon Sutherland

EY Global Center for Board Matters Leader and Area Program Management Leader

Global mindset. Power through diversity. Art lover. Intellectually curious. Traveler. Legacy matters. Passionate about learning initiatives.