what conflicts of interest can arise between managers and stockholders

What Conflicts of Interest Can Arise Between Managers and Stockholders

Doing business in a company is connected with many risks, and the risk of a conflict of interest between shareholders and management is one of the most relevant. Such conflicts not only have a detrimental effect on the work of the entire company but also have a negative impact on the company’s image as a whole. Also, the presence of a conflict of interest within the company often means that the process of selecting employees and establishing a normal relationship between them requires a radical review. We suggest you learn a bit more about what conflicts of interest can arise between managers and stockholders and how they can affect the life of the company as a whole.

What is a conflict of interest?

Often, the concept of a conflict of interest refers to a situation where a member of a management structure has or may have some improper benefit from his or her subordinates or other managers. Conflicts of interest may be tangible or intangible, but in any case, their presence is indicative of managerial problems within the company.

There are many practices that contain recommendations for eliminating conflicts of interest within the company. Moreover, many self-respecting firms create entire departments that specialize in detecting and eliminating conflicts of interest. Many know that presence of any conflict-and the presence of a conflict of interest even more so-can have a negative impact on a company’s image. conflicts can be particularly damaging between managers who are representatives of executive structures and shareholders who are representatives of management structures.

Most often, the following types of conflicts of interest can arise between these groups:

  1. Intangible. This is the type of conflict of interest in which there may be informal ties between representatives of executive and management structures, which can have a negative impact on the activities of the entire company. Such conflicts, for example, include direct subordination between close relatives, which can cause dissatisfaction on the part of other employees, as well as escalate into the clarification of personal relationships.
  2. Material. Such conflicts of interest arise when managers and shareholders have different amounts of cash support-particularly if the cash support of executive structures takes up too much of the corporate budget, resulting in less profit for shareholders. Such a mismatch of interests can not only adversely affect well-being, but over time it can become personal.
  3. Jurisdictional. If the company’s statutes do not clearly regulate the rights and responsibilities of each of the entities, this may lead to a conflict of interest. In such a situation, the risk of a corporate conflict turning into a personal one remains quite high, which also adversely affects the company’s work.

Conflict of interest, despite its significant impact on the work of the company, does not represent a hopeless situation – it is enough to use the best practices of their solution.

What does the director’s conflict of interest case law indicate?

We have already drawn attention to the fact that the existence of a conflict of interest can have a negative impact on the company’s work. However, its impact does not stop there – quite often these situations escalate into litigation. The modern legal practice provides numerous examples of conflicts of interest between managers and shareholders, however, all of them testify to the fact that no sufficiently effective system of conflict situation resolution was developed in the company itself. In order not to bring the case to court every time, we recommend compiling your own corporate guidelines on resolving conflicts of interest, taking into account the current jurisprudence.