Produced by Julie Garland-McLellan, Consultant at AltoPartners Australia and non-executive director and board consultant based in Sydney, Australia.

Contribution by Corinne Klajda, heads Accord Group Polska, a founding member of the AltoPartners Executive Search & Leadership Consulting global alliance. A founder and a non-executive chairwoman of Nuvadis Interim, Corinne also consults on multiple business transition & interim management assignments. Being a certified mentor coach, she has become a trusted advisor beyond the search focus: she maintains her coaching practice exclusively for CEOs, and regularly facilitates board discussions delivering leadership consulting services. Corinne is an active YPO member and a guest lecturer at the Warsaw School of Economics or at the Executive Program for Women at the Kozminski University that she particularly enjoys as she is a firm believer in female empowerment. She is based in Warsaw, Poland.

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The Director’s Dilemma - August 2025

This month our real-life board dilemma features a conflict of interest that fractures the board, shatters reputation, and reduces income.

Audrey chairs a charity board that often receives bequests.

A few months ago, the company was bequeathed a house. The executor of the will asked if he could buy the house from the Charity and offered $500,000.

The board decided to get the house professionally valued and a director, who happened to be married to a real estate agent, volunteered her husband for the role. The work was done on normal commercial terms, and the wife was not involved in negotiating the contract. The real estate agent valued the house at $580,000 and offered to list it for sale at that price and invite the executor of the will to make a bid. A few days later the house was sold for $600,000 to the father of the real estate agent. Two weeks after that, the house was sold again for $650,000 to an unrelated party.

The executor, having followed the sales on property registers, wrote to Audrey and claimed that it was a fraud and a conflict of interest for the spouse of a director to get paid to value the house, then receive commissions for selling it, and then for his father to make a $50,000 gain on the transactions. Audrey checked the details of the transactions and confronted her director, asking for an explanation. The director was defiant, claiming that all she had done was recommend an agent who had valued and sold the house with a $100,000 extra gain for the company over the original offer from the executor of the will. The executor is now running a Facebook campaign against the company and has just managed to get an article into the local paper.

What can Audrey do to protect the reputation of the company she loves?

Corinne’s Answer

This is a serious issue that has negative reputational consequences for the charity as well as the directors associated with the business, but importantly for Audrey as the Chair of the charity board. From a reputational perspective, all directors - and their family members - should understand that a charity organisation should not be used for personal gains and the actions of the director will be seen to be creating financial gain from the charity as they used their insider knowledge of the process to gain a financial advantage in the sale and purchase of the property.

To address the negative reputational impact from the executor’s claims, and subsequent media campaign, Audrey needs to take decisive action by:

1. Consulting legal counsel to understand the best course of action to take against the director and to aid in redirecting the financial gains back to the charity.

2. Raising the issue at a special board meeting and call on the director and her family to redirect all profits made from the transactions back to the charity. However, unless Audrey wants to pursue a legal option, this can only be an appeal to the director’s good will to do the right thing.

3. Removing the director from the board of the charity citing the conflict-of-interest issue and the negative reputational impact caused by the actions of the director’s family members.

4. Consulting with a public affairs / reputational management specialist to craft a legally sound media holding statement that reiterates the commitments of the charity, stating the removal of the director from the charity’s board and detailing the course of action the board has taken to address the situation. This statement should only be shared with media per the reputational management specialist advice.

5. Avoiding future conflicts of interest, Audrey needs to ensure that Governance documents are revised to reiterate the stance on reporting of conflicts of interest. All directors need to sign the updated Conflict of Interest documents.

6. Finally, Audrey should also step down as Board Chair to take responsibility for the oversight and the fact that this conflict of interest happened under her guard.

Julie’s Answer

This is an unfortunate sequence of events. As chair, Audrey must take a decisive lead in ensuring that governance is strengthened in the long term and reputation damage minimised in the short term.

She should create an ad hoc taskforce of herself, the audit committee chair, the chair of the Governance or nominations committee (assuming neither Audrey nor the implicated director are chairs of those committees), and the Company Secretary or CEO.

The committee should review the boards policies and constitution to ensure that they remain satisfied with the robustness of these. Then they should review the minutes of the relevant board meetings and construct a timeline of what happened and what role was played by the board and the implicated director. Did they breach any existing governance arrangement, and would they have breached any better ones that seem necessary with the benefit of hindsight?

Now Audrey is ready for a conversation with the board’s legal advisor and can provide the relevant policies, suggested enhancements, and timeline. Legal advisors are an investment not a cost but if you take the time to prepare a good briefing for them, your can save time and money.

It appears that only the decision to award the valuation and sale to a related party were within the board’s purview; the subsequent sales and gains happened after those two decisions and without involving the board.

Merely removing a related party from discussions is a weak protection - in future the board should seek independent service providers and several quotes to ensure they make a reasonable choice.

The charity did, however, make $100k more than they would had they sold to the executor without the professional valuation. Presumably, the executor was offered a chance to match or better the price at which the Charity sold. If not, Audrey needs to know why not.

The implicated director is now defiant and feels she has been attacked for offering to help. She possibly had no idea the property would sell again almost immediately. If she will not stand down, there is risk in asking the Members to vote her off the board. Careful legal advice on what to say and how best to proceed is essential.

Good luck, Audrey, and beware of conflicts of interest in future!