Solving (or embracing?) conflicts of interest
I’ve had to resolve many conflicts of interest over the years. I’ve always felt uneasy about them, and often went to extremes just to avoid the impression of a conflict of interest. Then someone said something to me that really got me thinking:
“If you don’t have any conflicts of interest, you’re not doing anything interesting.”
That’s a bit cute to be useful, but there is some truth in it. The truth is this: conflicts of interest cannot be avoided. So embrace them, and manage them properly.
Why shouldn’t conflicts of interest be avoided? Because they also bring tremendous value. If you have an interest in a company that can genuinely help another company to which you owe a fiduciary duty, why shouldn’t you make that introduction? And there are so many potential conflicts of interest, how could you avoid them?
You serve on a board and provide a service to the company. You coach a soccer team, and your son plays on the team. You own a business and employ a family member. You run the PTA, and your kid goes to the school. 
Of course, there will be conflicts of interest. Don’t hide them and feel guilty while you wait for someone to call you on it. Own it, embrace it, and manage it. Here are some guidelines for how to embrace your conflicts of interest:
1. Transparency
Simply be clear both that they exist, as well as when decisions or actions run into them. When it comes to decisions regarding my son on the soccer team, I often invoke my assistant coaches to help make the decision. When I introduce an advisory client to a company I own part of, I make clear that I have an ownership interest. Of course, that ownership interest is likely a result of the fact that you believe in the product.
Simply putting everything out there which you are involved in makes it easier. The more you are transparent in general, it is less likely that something is a surprise. It is one of the reasons I try to maintain a fairly comprehensive LinkedIn profile.
2. Determine clear roles and responsibilities
Clear roles and responsibilities provide both clarity and guardrails for decisions. It helps avoid the chance of accidentally overstepping your role into the conflict of interest. This is some of the prime advice from a recent article on the inevitable conflicts of interest that reside in family-held company boards of directors.
Everyone needs to be explicit about their roles in and out of the boardroom. The best way to start is by writing job descriptions. Resist the temptation to see this as a layer of bureaucracy, but rather see it as an opportunity to make roles and responsibilities more explicit to all. With the job descriptions and expectations, there is a shared understanding of where the boundaries lay in each role. This is not only valuable for the governance structure, but also helpful when transitioning from founder to the next generation to determine which decisions are for management verses ownership. Again, it comes back to knowing which hat to wear for different situations.
Another tool we encourage for clients is a Decision-Input Table for ownership, management and the board. In one column, list the types of decisions that need to be made and then in the other column, identify which group has the ultimate authority. Also list which group(s) should weigh in on specific topics. For example, deciding on the CEO’s compensation is typically a board decision but management could have input regarding industry norms.
In a family-held company, separating your roles is very difficult, especially between family and company roles. I think one of the hardest is when one generation retires from CEO and the next generation takes over. Then there are often 3 roles that fall into conflict: dad or mom, former CEO, and usually chairman of the board. I often recommend that this individual step out of the role of chairman of the board so that the CEO can have a clear relationship with the board, and not worry about whether they are talking to the chair or to mom and dad.
As a soccer coach and parent, one of the toughest roles is giving feedback to your own kid. Was that a coach, or dad giving me feedback? And was it fair or unfair? I try (but need to do much better) to let my assistant coaches give feedback to my son, while I take the burden of feedback to theirs. Then it is always a coach, and the conflict is less of one.
3. Remove the key decision
When there is one key decision where the conflict would culminate, just eliminate the decision from the equation. An elegant example of this where the conflict is centuries old is the key holder for the Christian Church of the Holy Sepulchre in Jerusalem. Here is a description:
Every morning, a monk must come to the door which is unlocked by a Muslim man who holds the keys to the church. Muslims have been entrusted with the keys since 1187, primarily because the various Christian factions which reside in the church cannot agree to nearly anything, and therefore to keep the church and its shrine open, the keys are entrusted to a Muslim family. According to historical records, and Adeeb Jawad Joudeh, who holds the keys, they have been handed down from one generation to the next, since being given to the family in 1187 by Sultan Saladin.
I’ve met the man during one of my Israeli trips. He sits there, rather regally, knowing his role is to inherently keep the peace between different Christian sects simply by removing one “key” element of conflict (sorry, bad pun, but I couldn’t help myself).
When a company where I serve on the board wants me to do some advisory work above and beyond the role of a board member, there is an inherent conflict that could be perceived as using my board role to “line my pockets.” The key decision is me getting paid, so I simply remove that. I usually resist the request at first, but if I acquiesce, I simply tell the company to pay me what they want. I will do the work required, and they will pay me what they want to. I have removed myself from the key decision that could create a conflict, and even if no one is batting an eye, I can sleep better knowing that I didn’t intentionally or accidentally leverage the conflict in my interests.
If you don’t have any conflicts of interest, you aren’t doing anything interesting. Don’t make conflicts of interest a reason to not do interesting things.