Famous Board Management Conflict of Interest Cases

3 Famous Board Management Conflict of Interest Cases

In the history of modern business, there are many successful and not-so-successful examples of company development. Including quite a few examples of conflicts of interest, which had a significant impact on the further development of the company and its employees. It has already been said much about how dangerous the conflicts of interests are for the work of the company. We would like to bring to your attention several famous conflicts of interest cases that will show in practice how disastrous the consequences of conflicts of interest of various levels and types are.

What can the most famous examples of conflicts of interest tell us?

All known stories of conflicts of interest tend to point to one thing – an inadequate system for resolving conflicts within a company, as well as inconsistency in the practices used with legal norms. Examples include the following cases:

  1. BlueCrest Capital Management. Last year, the company was forced to pay more than $50 million in compensation for failing to resolve a conflict of interest in a timely manner. In this case, the conflict arose because of an ill-conceived executive portfolio allocation policy that resulted in losses to outside investors. Although the conflict dates back to 2015, the litigation has not yet ended.
  2. CCO. This relatively recent case arose because two executives at a prominent California consulting firm concealed their conflicts of interest while in a management role. The misconduct itself was discovered by the Securities Commission, which initiated litigation on the matter. As a result of the misconduct of the company’s directors, not only its shareholders but also its corporate image suffered.
  3. RHB Securities Hong Kong. Also, one of the most striking recent examples, was when the conflict of interests within the company went beyond the company’s boundaries and reached the point of litigation. In this case, an audit of the company’s operations found that its corporate statute did not contain the necessary conflict of interest regulations. As a result, the company was fined more than $6 million by the Securities and Futures Commission.

The abovementioned examples show that even the presence of legal norms, which prescribe to avoid and solve conflicts of interests inside the company promptly, are not always observed by the companies. The interests of a large number of people suffer as a result of such actions.

What are the dangers of directors’ conflict of interest?

The resolution of conflicts of interest requires a particularly careful approach since the consequences of such situations can be unpredictable. In addition to financial losses, corporate conflicts of interest may have other consequences:

  • Loss of a company’s positive image, since both customers and business partners, will not be able to trust a counterparty that ignores legal regulations;
  • Loss of market value of the company – it is quite common to see the company’s shares decline due to conflict of interest proceedings, resulting in losses and loss of value to the entire market;
  • Subsequent reorganization – not all companies are able to maintain the stability of their operations while a conflict of interest is being resolved, which may result in reorganization changes that do not always benefit employees and shareholders.

It is worth remembering that a conflict of interest is easier to prevent than to resolve and deal with the consequences. It is also worth bearing in mind that the internal settlement mechanism should clearly comply with current legal norms.