How to Handle Conflicts of Interest as a Non-Executive Director

By Adrian Lawrence FCA, founder of NED Capital · Part of the Board Governance Hub

Conflicts of interest are an occupational reality for non-executive directors. An effective NED is, almost by definition, an experienced individual with other directorships, investments, advisory roles and professional relationships — and any of those can, on a given matter, collide with the interests of the company whose board they sit on. The existence of a conflict is not in itself a failing. What matters is how it is handled: a conflict declared and managed properly is a normal part of board life, while a conflict concealed or ignored is a breach of duty that can expose both the director and the company to serious consequences.

For a non-executive director, the stakes are particularly high, because the whole basis of the role is independence. A NED who cannot be seen to act free of personal interest cannot perform the oversight function the board depends on. This guide sets out the legal framework, the situations that most commonly give rise to conflicts, and the practical mechanics of handling them.

The Legal Framework: The Companies Act 2006

In the UK, a director’s duties in relation to conflicts of interest are not a matter of custom or best practice — they are set out in statute. The Companies Act 2006 codified the general duties of directors, and three of them bear directly on conflicts. These duties apply to every director equally, executive and non-executive alike.

Section 175 — the duty to avoid conflicts of interest. A director must avoid a situation in which they have, or can have, a direct or indirect interest that conflicts, or may conflict, with the interests of the company. This is deliberately broad: it captures not only actual conflicts but potential ones, and applies particularly to the exploitation of property, information or opportunity. Importantly, the duty is not breached if the situation cannot reasonably be regarded as likely to give rise to a conflict, or if the matter has been authorised by the directors — which is why board authorisation of a declared conflict is such an important mechanism.

Section 176 — the duty not to accept benefits from third parties. A director must not accept a benefit from a third party that is conferred by reason of their being a director, or their doing (or not doing) anything as a director. This is the provision that governs gifts, hospitality and inducements, and it is why boards maintain gifts-and-hospitality policies.

Sections 177 and 182 — the duty to declare an interest. Where a director is in any way interested in a proposed transaction or arrangement with the company, they must declare the nature and extent of that interest to the other directors (section 177). A parallel duty under section 182 applies to interests in transactions or arrangements that have already been entered into. Declaration is the pivotal act: it is the mechanism by which a conflict moves from being a hidden risk to a managed, transparent matter of record.

Breach of these duties is a serious matter. A director who fails to declare an interest, or who profits from a conflict without authorisation, may be required to account to the company for any gain and can face personal liability. For a non-executive director, the reputational consequences can be as damaging as the legal ones.

Common Conflict Situations for NEDs

Conflicts arise in recognisable patterns, and knowing the common scenarios helps a non-executive director identify them early — which is more than half the battle.

Competing and overlapping directorships. A NED who sits on the boards of two companies that compete, or that do business with each other, faces divided loyalties and the risk of confidential information from one influencing decisions at the other. This is one of the most common and most serious conflicts, and it may require the director to withdraw from particular matters — or, in acute cases, to choose between the two positions.

Personal financial interests. A shareholding, investment or financial relationship with a competitor, supplier or customer of the company creates a direct conflict where the board is considering a matter that affects that other party. The same applies where the company is contemplating a transaction in which the director has a personal stake.

Family and personal connections. Where a close family member or personal connection is employed by, or has interests in, the company or a counterparty, the director’s objectivity may be — or may appear to be — compromised. Perception matters here as much as reality, because the value of independent oversight depends on it being credible to others.

Advisory and consultancy roles. A NED who also advises or consults for an organisation connected to the company can find their independence questioned, particularly if the advisory relationship is undisclosed. Such roles should be declared and, where material, may warrant recusal from related decisions.

Gifts and hospitality. Benefits offered by parties with an interest in the company’s decisions engage the section 176 duty directly. Even where the intent is benign, accepting significant hospitality from a supplier during a tender, for instance, can create an appearance of influence that undermines the director’s independence.

Handling a Conflict in Practice

When a conflict arises, the correct response follows a clear sequence, and a non-executive director who follows it consistently protects both themselves and the company.

Declare it, promptly and fully. The first and most important step is disclosure. The director should declare the nature and extent of the interest to the board as soon as they are aware of it — before the relevant matter is discussed, not after. Prompt, full declaration is both the legal requirement and the foundation of good faith; a late or partial declaration is itself a problem.

Let the board consider authorisation. For some conflicts, the board can authorise the director’s continued participation under section 175, provided the company’s articles permit it and the conflicted director does not vote on their own authorisation. This allows a board to manage a declared conflict sensibly rather than lose a director’s contribution altogether where the conflict is not material to the specific decision.

Recuse where necessary. Where the conflict is material to a particular decision, the director should withdraw from the discussion and abstain from the vote, and in many cases leave the room while the matter is considered. Recusal is not an admission of wrongdoing — it is the proper, professional way to ensure that the board’s decision is, and is seen to be, untainted by personal interest.

Ensure it is recorded. The declaration, any authorisation, and any recusal should be minuted. A clear record protects the director by demonstrating that the duty was discharged, and protects the company by evidencing that the decision was properly made. Well-run boards also maintain a standing register of directors’ interests, reviewed regularly, so that potential conflicts are visible before they arise rather than discovered afterwards.

Independence, the Code, and the Board’s Culture

Beyond the statutory duties, the UK Corporate Governance Code treats the independence of non-executive directors as central to good governance, and identifies circumstances — significant shareholdings, material business relationships, cross-directorships, long tenure — that may impair, or appear to impair, a director’s independence. Handling conflicts well is therefore not only about individual transactions; it is about preserving the independence that qualifies a NED for the role in the first place.

Much also depends on board culture. In a healthy board, declaring a conflict is routine and unremarkable — directors do it as a matter of course, and the chair ensures the register of interests is kept current and taken seriously. In a weak board, disclosure is treated as an inconvenience, conflicts go unspoken, and the register is a neglected formality. The difference is set at the top, by the chair and the tone the board establishes, and it is one of the quieter but more important indicators of whether a board’s governance is genuinely sound.

Why This Matters for Board Appointments

Conflicts of interest are, at root, a selection issue as much as a procedural one. The willingness to declare a conflict promptly, to recuse without defensiveness, and to hold independence above personal advantage is a matter of character and professionalism — qualities that distinguish a genuinely independent non-executive director from one who merely holds the title. They are also qualities that a proper appointment process assesses directly, and that a superficial one misses entirely.

Appointing directors whose other interests are understood from the outset, and whose independence is genuine rather than nominal, is the first line of defence against conflict-of-interest problems later. At NED Capital we assess candidates for exactly this — genuine independence, sound judgement, and the professional integrity to manage conflicts transparently. Every search is led personally by Adrian Lawrence FCA, himself a Fellow of the ICAEW. To discuss an appointment, our NED recruitment service is the place to start, and boards considering their composition may find our guide on how to appoint a non-executive director a useful next step.

NED Capital | Sister practice of FD Capital | ICAEW practising certificate held by Adrian Lawrence FCA.