Director required to be sidelined in case of conflict of interest

The board determines the company's policy. As a director, therefore, you - possibly together with your colleagues - are in control. However, there is an important exception. A director is prohibited from participating in internal deliberations and decision-making if he has a direct or indirect personal interest that conflicts with the interests of the company and its affiliated enterprise.

1. When is this an issue?

   A comparison must be made between the interests of the company and the direct or indirect interests of a director. The textbook example is a (pre-war) situation where a director offered his son an employment contract. In that case, a personal interest was assumed because of the satisfaction a father can derive from a good salary from his son.

2. When not?

   The foregoing does not apply if there is a purely qualitative conflict of interest (if someone also serves the interests of another legal entity solely because of his position), or in the event of a parallel interest (if both benefit). Since 2013, a conflict of interest also no longer affects the (external) power of representation. But please note that this legislation only applies to companies for now. The old rules still apply to foundations and associations, although new legislation has been in the pipeline for some time.

3. So who does make the decision?

   If a director is conflicted, the decision is made by the remaining directors. If there are no other directors or each director is conflicted, the authority shifts to the supervisory board. If there are no (non-conflicted) supervisory directors either, then the authority shifts to the general meeting of shareholders, unless the articles of association provide otherwise. Incidentally, it happens that this is ultimately the same person.

4. Other liabilities

   A special feature of the conflict of interest legislation is that it does not fully reflect case law. The Enterprise Chamber sets additional requirements and prescribes that even at the possibility of a conflict of interest, maximum openness and transparency must be sought. This applies in addition to the statutory rules. In the event of a possible conflict of interest, it is therefore advisable to report it in good time and to have intended decision-making tested independently.

In conclusion

So the main rule is perfectly clear. Yet reality is never black and white. What if in doubt? Does jurisdiction then shift or not? Many therefore feel that the legislation has not become any clearer. In practice, often even a second decision is simply made just to be sure, in case the first one turns out not to be legally valid.