For board members, conflicts of interest are “situations in which a person is in a position to derive personal benefit from actions or decisions made in their official capacity.”
Example: Let’s say that a director serves on a board for a rental car company, and he also works as an auto insurance salesman for his primary job. If the board he served on voted to buy insurance from his company, this would present a conflict of interest because the board member would stand to gain personally from that transaction.
For an incident to qualify as a conflict of interest, it must involve the clash between a director’s official duties and their own self-interest. Legally speaking, this sort of situation would obviously muddle a director’s ability to make the correct and impartial choice for the shareholders’ benefit.
What dangers do conflicts of interest present?
Conflicts of interest that have not been addressed can result in legal action taken against both an individual board member as well as the organization they serve. These intermediate sanctions can have an extremely negative affect on the finances of an individual or an organization.