There continues to be compliance and reputational value associated with a policy requiring members of the management team to obtain senior corporate approval before accepting outside business arrangements and board service.
This value is underscored by recent developments involving a major private university and a long-serving senior executive with responsibility for administration and finance. According to media reports, the former executive received an annual fee of approximately $14,000 for serving on the board of a construction-technology company. These reports determined that the former executive was pressuring colleagues to use the company's services, and promoting the company's work within the university.
While the former executive reportedly had obtained the approval of the university chancellor for this board service, he allegedly failed to disclose that there was a pre-existing business relationship between the company and the university, and that university divisions under the former executive's direction were conducting business with the company. As is often the case, the full circumstances were brought to the university's attention through a whistleblower complaint and were the subject of substantial public notoriety. (In essence, the former executive appears to have jeopardized a long career for a de minimis annual stipend.)
A well-structured "Outside Business Arrangements" policy will help balance the legitimate benefits obtained by an executive from outside business arrangements/board service, with the distraction to the executive's daily duties, and potential conflicts, arising from that service. Approvals are typically made by the CEO and ratified by the board (or a committee thereof). Criteria for approval include a description of the nature of the service; demonstration of how the service will benefit the employer organization; the absence of actual or potential conflict; an understanding of how related compensation will be allocated; confirmation that the outside service will not distract from the performance of the executive's duties; and a full, good faith disclosure of all relevant facts.
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