Question

Public corporations are led by CEOs and other upper-echelon leaders who, in turn report to shareholders and board of directors (BODs). Interestingly, even though the board overseas the CEOs, decides on the terms of employment and salaries, and monitors their performance, the CEOs are, more often than not, the people who nominate board members. The justification is that CEOs are well placed to know what type of expertise they need on the board and should have a BOD they can work with. The relationship between BOD and CEO is a complex and interesting one.

What are the potential ethical and conflict of interest issues arising from CEO involvement in the selection of board members?

How can these issues be addressed?
cite a minimum of one outside source.

Answer 1

The Board of Directors are directly in charge of the appointing and terminating of the CEO, and are responsible for overseeing the Corporation ’s issues and its management. Therefore, CEO — the one individual specifically in charge of that management — nominating the directors could lead to a conflict of interest. The potential situations of conflict of interests can make open doors for abuse, as CEO may abuse his position and cover from the board potential issues and any issues created by his management. Board individuals may likewise neglect their institutional obligations out of individual loyalty to the CEO. CEO may welcome dear companions to join the board as executives. Board members being nominated by the CEO to might be affected by a feeling of dedication or obligation to the director or CEO, regardless of whether the CEO or executive isn't acting to the greatest advantage of the organization or its investors or different partners.

Measures to address conflict of interest:

1. Conflict resolution policy which should stipulate that all the board members should disclose their personal and monetary interests.

2. Well laid out procedures to deal with situations when instances of conflict of interest arise

3. Presence of an autonomous board that actively involves itself in the business to protect the interests of shareholders