A Chairperson’s Guide to Managing Conflicts of Interest in the UK Boardroom

For any Chairperson in the United Kingdom, ensuring the board acts with undivided loyalty is not merely a matter of good practice; it is a legal imperative. The duty to avoid conflicts of interest, enshrined in section 175 of the Companies Act 2006, is a cornerstone of corporate governance. Yet, many boards believe that a simple declaration of interest at the start of a meeting is sufficient to discharge this duty. This is a dangerous misconception. The reality is that conflicts are often subtle, indirect, and can arise from relationships and situations, not just transactions.

The common approach of maintaining a static register and relying on directors to self-report is fraught with peril. It overlooks the pervasive influence of connected persons, the pressures exerted by major shareholders, and the critical legal distinction between a civil conflict and a criminal bribe. True governance requires a shift in mindset: from a passive culture of disclosure to an active system of identification, evaluation, and formal authorisation. The responsibility for embedding this procedural integrity falls squarely on the Chairperson.

This guide moves beyond the platitudes. It provides a stringent, legally-grounded framework for navigating the complexities of conflicts of interest in a UK context. We will not simply tell you *what* your duties are; we will detail *how* to build the procedural architecture to fulfil them, protecting the company, the board, and yourself from significant legal and reputational risk. We will examine the mechanics of authorisation, the traps of indirect influence, and the precise documentation required to create an unimpeachable record of the board’s independent judgment.

This article provides a detailed examination of the critical aspects of conflict management. The following summary outlines the key areas we will dissect to provide a comprehensive and actionable framework for your board.

Why Indirect Interests Are Often Overlooked by Directors?

The most challenging conflicts are rarely direct financial stakes in a transaction. They are the ‘situational’ conflicts arising from indirect interests, which directors often fail to recognise or deem immaterial. These can stem from the business activities of a spouse, the directorships of a child, or other connections that compromise a director’s ability to exercise independent judgment. The high-profile resignation of Charlotte Hogg from her role as Deputy Governor of the Bank of England serves as a stark reminder.

This oversight often stems from a lack of understanding of the breadth of ‘connected persons’ under UK law. The Companies Act 2006 provides a clear, and wide-ranging, definition. A director’s duty extends to monitoring potential conflicts arising from:

As the image of interconnected links suggests, these relationships form a complex web. Under sections 252-254 of the Act, directors must proactively track the interests of not only their immediate family (spouse, children, parents) but also corporate bodies where they and their connected persons control more than 20% of the voting power. This legal framework, detailed in the Companies Act 2006 on connected persons, is not optional; it is the minimum standard for identifying indirect interests before they become unmanageable liabilities.

How to Maintain a Live ‘Register of Interests’ That Is Actually Useful?

A Register of Interests that is merely filed and forgotten is a compliance document, not a governance tool. Its purpose is to provide the board with the information needed to identify and authorise conflicts *before* they taint a decision. However, this is an area of common failure. The UK’s National Audit Office (NAO) has found that many UK public bodies lack an effective system for managing conflicts, with compliance being highly variable and poorly recorded. For a corporate board, this level of procedural weakness is an unacceptable risk.

To be genuinely useful, the Register must be a live, dynamic document integrated into the board’s workflow. This requires a shift from passive reliance on director declarations to active management by the Company Secretary, under the Chairperson’s oversight. A best-practice approach involves several key elements. Firstly, the Register must be reviewed and re-attested by every director on a quarterly basis, not annually. This ensures that new interests are captured promptly.

Secondly, and most critically, the Register must be actively cross-referenced against the agenda for every board meeting. The Company Secretary should be tasked with a pre-meeting screening process to flag potential intersections between a director’s declared interests and the matters scheduled for discussion. This proactive step transforms the Register from a historical record into a predictive risk-management tool. Finally, the Register should be a core component of the director induction process, with specific training on what constitutes a declarable interest, including the often-misunderstood indirect and situational conflicts.

Recusal vs Resignation: What Is Appropriate for Serious Conflicts?

When a material conflict is identified, the default procedural step is for the conflicted director to recuse themselves from the relevant discussion and vote. This isolates the conflict and allows the remaining, non-conflicted directors to make an independent decision. However, what happens when a conflict is so profound or pervasive that simple recusal is insufficient? Or, more problematically, when a director acknowledges a conflict but refuses to cooperate with management measures?

This scenario, described by DLA Piper as the ‘uncooperative director’, occupies a governance grey area. An analysis from the firm highlights that while the Companies Act provides clear duties, it offers limited practical tools for boards dealing with a director who resists mitigation. If a conflict is fundamental and ongoing—for example, a director taking a senior role at a key competitor—recusal on an item-by-item basis is impractical. The director’s continued presence on the board could contaminate all strategic discussions. In such cases, resignation may be the only appropriate course of action to protect the company’s interests.

The escalation path from requesting recusal to demanding resignation is legally and interpersonally fraught. It requires meticulous documentation of the conflict, the board’s reasoning for why recusal is insufficient, and the director’s response. According to a DLA Piper analysis on director cooperation, this procedural rigour is essential to defend the board’s actions should the director challenge their removal. The Chairperson’s role is to lead this difficult process, ensuring that the board acts reasonably, decisively, and in accordance with its duties and the company’s Articles of Association.

The Influence Trap: When Major Shareholders Act like Directors Without the Liability

A significant and often unmanaged conflict arises when a major shareholder, particularly in a private equity or venture capital context, exerts significant influence over the board’s decisions. When the board is “accustomed to act” in accordance with a shareholder’s directions or instructions, that shareholder may be deemed a ‘shadow director’ under section 251 of the Companies Act 2006. This exposes them to the same duties and potential liabilities as a legally appointed director, a risk many investors are keen to avoid. For the board, the danger is that their independent judgment is compromised, creating a conflict between their duty to the company and their relationship with the influential shareholder.

This is particularly acute for nominee directors appointed by an investor. Their loyalty can be divided between the company on whose board they sit and the shareholder who appointed them. The key principle, established in *Hawkes v Cuddy*, is that a nominee director’s primary fiduciary duty is always to the company, not their appointer. The Chairperson must ensure this principle is understood and evidenced in the board’s deliberations.

Defeating a future claim of shadow directorship requires demonstrating the board’s independent deliberation. Board minutes must be drafted to show that shareholder input was treated as advice to be considered, not an instruction to be followed. The record should show evidence of challenge, discussion of alternatives, and the independent reasoning behind the board’s final decision. Failure to do so can result in the board being seen as a mere ‘rubber stamp’, invalidating its decisions and exposing it to liability.

When to Declare a Potential Conflict: Before or During the Meeting?

The Companies Act 2006 makes a critical distinction. A director’s interest in a proposed transaction or arrangement (a ‘transactional’ conflict under s.177) must be declared before the company enters into it. A ‘situational’ conflict (under s.175), which arises from a director’s position or relationships, requires prior authorisation from the non-conflicted directors. The simple answer to the question is therefore “before,” but procedural reality is more complex. Best practice dictates a proactive, multi-stage approach to declaration that does not rely on a director’s memory in the heat of a meeting.

This is another area where procedural failings are common. The NAO has noted that public bodies in the UK take inconsistent approaches to what needs to be declared and how, with compliance often going unrecorded. A robust board process must eliminate this inconsistency. The ideal workflow begins long before the meeting convenes, led by the Company Secretary. At least 48 hours prior, the draft agenda should be screened against the live Register of Interests to flag any director whose interests intersect with agenda items.

At this point, an assessment is made: is the conflict transactional (requiring a declaration at the meeting) or situational (requiring prior authorisation)? If recusals are likely to break the quorum, this must be addressed. The conflicted director should be notified in advance. This pre-screening does not remove the need for a formal declaration at the meeting itself. The Chairperson must still invite declarations before each substantive item to capture any emergent conflicts. If a new conflict becomes apparent during a debate, the discussion on that item must be immediately adjourned until the conflict can be properly managed. All declarations, recusals, and authorisations must then be meticulously recorded in the minutes.

The Compliance Error That Exposes Directors to Personal Liability During Pivots

One of the most severe compliance errors a board can make is failing to recognise when its primary duty shifts. While directors’ duties are normally owed to the company (for the benefit of its shareholders), this changes as a company approaches insolvency. At this point, a duty to consider the interests of creditors is triggered. A director who fails to heed this shift, particularly when their own interests are involved in a decision, faces a high risk of personal liability.

The *Sequana* judgment confirmed the existence of the creditor duty but deliberately avoided setting a precise, bright-line test for when it is triggered. This was intentional, as the court maintained a context-specific approach. However, an academic analysis following the decision noted that as a result, ” the scope of this duty remains unclear, particularly the degree of financial difficulty necessary for it to arise.” For a Chairperson, this ambiguity is a risk. It means that during any significant corporate pivot, restructuring, or period of financial uncertainty, the board must proactively consider and document its consideration of creditors’ interests, especially when authorising any transaction that benefits shareholders or directors personally.

The Gift from a Supplier That Violates the Bribery Act 2010

Corporate hospitality, gifts, and other benefits from third parties (like suppliers) create a classic conflict of interest. A director receiving a benefit may feel an obligation to the giver, consciously or unconsciously biasing their judgment in matters relating to that supplier. While the Companies Act 2006 provides a framework for authorising such conflicts, directors must be acutely aware of a more severe risk: the Bribery Act 2010. A benefit that is intended to induce the “improper performance” of a director’s duties is not a civil conflict; it is a criminal bribe.

The distinction is critical because the remedies are vastly different. A civil conflict can often be cured by disclosure and authorisation from the board. Declaring a potential bribe does not make it legal. The offence is the improper inducement itself. As the NAO’s guidance notes, while low-value gifts are generally acceptable, judgment is needed for higher-value items, and this can be confusing. The core test under the Bribery Act is the *intent* behind the gift. Was it offered to cement a good commercial relationship, or to secure an advantage by making a director breach their fiduciary duty?

For a company, the Bribery Act creates a strict liability offence of ‘failure to prevent bribery’ under section 7. The only defence is to prove that the company had ‘Adequate Procedures’ in place to prevent bribery. A clear policy on gifts and hospitality, with defined value limits and a mandatory register, is a key part of this defence. The table below outlines the crucial distinctions a Chairperson must ensure the entire board understands.

How to Draft Statements of Responsibility That eliminate Grey Areas?

The ultimate defence against a claim of unmanaged conflict is a clear, unambiguous record of how the board handled it. This record lives in two places: the company’s Articles of Association and the board minutes. Drafting these documents with precision is not a secretarial task; it is a core governance function that eliminates ambiguity and protects the board. Vague language like “the board noted the interest” is insufficient and dangerous. The minutes must show a formal resolution of the non-conflicted directors.

The language must be explicit, stating that the board has resolved to ‘authorise the matter under section 175 of the Companies Act 2006’. The minutes must also confirm that the conflicted director was excluded from the quorum and the vote for that resolution. To prevent paralysis, well-drafted Articles should contain specific clauses to manage conflicts, such as defining ‘materiality’ thresholds for interests and including a ‘Quorum Rescue’ provision. This allows the non-conflicted directors to authorise a conflict even if they do not, by themselves, constitute a quorum.

Furthermore, any authorisation can and should be conditional. The board can grant authorisation subject to specific terms, such as excluding the director from receiving related board papers or participating in informal discussions on the matter. According to guidance from legal experts at Stevens & Bolton on director duties, recording these conditions in the minutes is crucial. This demonstrates that the board has not just permitted the conflict but has actively managed and constrained the risk arising from it, providing a robust defence for its actions.

By embedding these principles of procedural integrity, proactive screening, and meticulous documentation into your board’s culture, you transform conflict of interest management from a compliance checkbox into a strategic asset that underpins the board’s legitimacy and protects it from liability. To implement this framework effectively, the next step is to conduct a thorough review of your current Articles and board procedures against this best-practice standard.