Questions to help you identify potential conflicts of interest on your board: Part 4

In Part 3, we looked at Tier-III conflicts, or those between stakeholders and other stakeholders. In Part 4, the final segment in this series, we look at Tier-IV conflicts of interest – those between your company versus society.

The way a company views its purpose will affect its notion of responsibility, its accountability and how it creates value. In general, companies and society are not in conflict: Corporations contribute to society by inventing new technologies, fulfilling consumers’ demands for goods and services, and creating jobs; society creates the conditions that allow companies to harness their potential for the common good of humanity.

However, if not managed properly, maximizing returns for shareholders can have indirect harmful effects on society, including shaping the rules of the game (e.g. lobbying to change a law, tax rules, accounting rules, subsidies, etc.), pollution, market manipulations through collusion, or limiting the opportunities for future generations to improve their lives.

Self-assessment questions to ponder with regard to this last dimension of possible conflict include:

• Why does your company exist?
• How does it create value?
• Is your company a contributor or a value-extractor in society?
• Do you have the courage to take an ethical stand when your company is in conflict with society?

Tier-IV conflicts between a company and society are philosophical. Solving them requires directors to act as moral agents and be able to distinguish “good” from “bad”. Do companies compensate stakeholders because they are useful, because they are protected by law? Or do they do so because stakeholders contributed to the success of the company? Should companies consider the interests of future generations who have not directly contributed to profitability and who are not represented on the board?

Good governance starts with the integrity and ethics of every director on every board. Board directors have a moral obligation not to take advantage of the company, but to be loyal to the company, make wise decisions, neutralize conflicts among stakeholders, and act in a socially responsible way.