How do you manage conflicts of interest on a board in New Zealand?
In New Zealand, conflicts of interest on a board are managed through early disclosure, careful decision‑making, and adherence to directors’ duties under the Companies Act 1993. The starting position is that directors must put the company’s interests first, even where they have personal or external interests that overlap with the company’s affairs.
Why this matters for startups
Conflicts of interest are common in early‑stage companies. Founders often act as directors while also being shareholders, employees, or involved in other businesses. If conflicts are not handled properly, they can undermine board decisions, expose directors to personal liability, and damage investor confidence.
What is a conflict of interest?
A conflict of interest arises when a director’s personal, financial, or other interests could influence, or appear to influence, their ability to act in the best interests of the company. This might include interests in a supplier, a competing venture, or a transaction involving the director personally.
Directors’ disclosure obligations
Under New Zealand law, directors are required to disclose interests in transactions or matters involving the company. Disclosure allows the board to be aware of potential conflicts and to manage them transparently. Importantly, disclosure does not remove the underlying duty to act in the company’s best interests.
How boards typically manage conflicts
Boards commonly manage conflicts by:
- Recording disclosed interests in board minutes or interest registers
- Excluding conflicted directors from discussions or decisions where appropriate
- Ensuring decisions are made by unconflicted directors acting independently
These approaches help protect both the integrity of board decisions and the directors involved.
Consequences of getting it wrong
If conflicts are not properly disclosed or managed, directors may breach their statutory duties. This can lead to personal liability, court orders, or disqualification from acting as a director. These risks apply regardless of company size or stage.
Practical takeaways
Every company must keep an interests register and directors must ensure relevant entries are made in it. Make sure you create this register and keep it up to date. Make it a standing agenda item at board meetings that directors present declare any new interests where there may be a conflict.
FAQs
Can a conflicted director still vote?
- It will depend on what the company’s shareholders’ agreement and constitution say. As matter of good governance, boards may ask a conflicted director to step aside from deliberations or decisions to avoid any perception that the outcome was influenced by personal interests and to ensure decisions are clearly made in the best interests of the company.
Does a company constitution or applicable shareholders’ agreement affect conflict management?
- Yes, both can be relevant. A company constitution may set our requirements for disclosure of conflicts of interest and whether a conflicted director can participate in discussions or decisions. A shareholders’ agreement may also set agreed expectations or processes for managing conflicts, particularly in closely held or founder‑led companies.
Need to know more? These may help:
- What are directors’ duties under the Companies Act 1993 in New Zealand?
- What does good corporate governance mean for New Zealand companies?
- When can directors be personally liable in New Zealand?
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Special thanks to Partner Gareth Clendinning and Associate Tom Mohammed for preparing this article.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
