Conflict-of-interest declaration: when disqualified?

What is a conflict of interest?

A conflict of interest arises when a person in a position of trust, for example a board member, a director or a public employee, has personal, financial or other interests that can affect their ability to make neutral and objective decisions.

Conflicts of interest are not necessarily a sign of dishonesty. They are a natural part of having relationships, and precisely for that reason they must be handled systematically and transparently.

Typical examples of conflicts of interest:

• A board member is a co-owner of a supplier the company is considering contracting with
• A director has a close family relationship with a job applicant for an important position
• An association member votes on their own remuneration
• An adviser receives commission from a third party for recommending certain products

What is a conflict-of-interest declaration?

A conflict-of-interest declaration is a document in which a person states in writing any potential conflicts of interest in relation to a particular decision, contract or their role in general. It is a central tool in good corporate governance and is used to:

• Document that relevant parties are informed of potential conflicts of interest
• Give the other decision-makers the chance to assess whether the person is disqualified
• Protect the person who declares against later accusations of a hidden conflict of interest
• Comply with legal requirements and internal guidelines on disqualification

The declaration does not in itself change whether the person is disqualified. It documents that the conflict has been disclosed. It is then up to the other parties to assess whether the person should withdraw from the decision-making process.

When is a conflict-of-interest declaration relevant?

In companies and boards

Section 131 of the Companies Act provides that a member of management may not take part in the consideration of matters concerning agreements between the company and that person, or agreements between the company and a third party, if the management member has a significant interest in it that may conflict with the company's. The disqualified person may not take part in the consideration of or the vote on the matter.

In practice, board members are expected to disclose possible disqualification situations before the meeting, and it is good corporate governance to record it in the minutes.

In associations and public bodies

The Public Administration Act (chapter 2, including section 3) sets rules on disqualification for public authorities and employees. Similar principles are often used in associations with articles on disqualification. Many associations ask all board members to complete an annual conflict-of-interest declaration.

In tenders and public contracts

In public tenders it is common for tenderers to have to declare on conflicts of interest. The Public Procurement Act contains rules on handling and excluding conflicts of interest that cannot be effectively remedied (a conflict of interest is defined in section 24(20), and exclusion can take place under section 136).

What should a conflict-of-interest declaration contain?

A well-drafted declaration should contain:

1. Identification

Full name, position, company or organisation and the date of the declaration.

2. The purpose of the declaration

State what the declaration concerns, for example "in relation to the board work in [company]" or "concerning the contract on [service] with [supplier]".

3. Disclosure of conflicts of interest

There are two possibilities:

• A declaration of no conflicts of interest: the person confirms there are no known conflicts.
• A declaration of existing conflicts of interest: the person describes the conflict specifically, for example "I am a co-owner (10%) of Supplier ApS, which the company is considering contracting with."

4. Handling

State what the person will do to handle the conflict, for example withdrawing from the specific decision.

5. Signature and date

The declaration is signed and should be kept in the company's records.

Conflict of interest vs. disqualification

The terms are often used interchangeably, but there is a difference:

• A conflict of interest is a situation: two sets of interests that potentially conflict.
• Disqualification is a legal consequence: the person should not take part in a particular decision because of the conflict.

A conflict of interest does not automatically lead to disqualification. It depends on the nature of the conflict and its relevance to the specific decision. But a declared conflict of interest should always be assessed carefully before the person is involved in the matter.

Consequences of a missing declaration

If a board member fails to disclose a significant conflict of interest, it can have serious consequences:

• Invalid decisions: a decision made with the involvement of a disqualified person can, depending on the circumstances, be set aside
• Liability in damages: a management member can become liable for a loss caused by the disqualification
• Criminal liability: in serious cases, where there is also a misuse, the matter can have criminal consequences, for example under the Criminal Code's rules on breach of trust
• Reputational damage: hidden conflicts of interest that are revealed damage trust in the company and its management

How to build a good conflict-of-interest policy

A single declaration is only the beginning. An effective policy should include:

1. An annual declaration from all board members and directors
2. An ongoing duty to disclose new conflicts of interest during the year
3. A register of declared interests, available to the relevant parties
4. A procedure for disqualification: who assesses whether the person is disqualified, and how is it documented?
5. Consequences for non-compliance, set out in the articles or the employment contract

Getting started

A conflict-of-interest declaration adapted to Danish company law and good corporate governance covers both the declaration of no conflicts and the declaration of specific, existing interests. The document can be signed digitally and should form part of the company's records as part of an overall conflict-of-interest policy.

Note: the content of this article is general information and not legal advice. Contact a lawyer if you are in doubt about your specific situation.