Dr. Charles Finnegan is a newly-appointed member of the Board of Directors of Wa

Question

Dr. Charles Finnegan is a newly-appointed member of the Board of Directors of Walnut Grove Community College (W.G.C.C.) in Walnut Grove, California. The position is unpaid, but does come with the “perks” of positive exposure and prestige in the local community. At his first board meeting, the directors are discussing and considering for approval service contracts between W.G.C.C. and the local business community. The third contract for consideration is a janitorial service contract, valued at $150,000, between W.G.C.C. and Antiseptic Andy Cleaning Service, Inc. Finnegan is quite surprised; after all, “Antiseptic Andy” is owned and operated by his first cousin, Andrew Deere. Cousins Finnegan and Deere have not seen each other in three years, nor have they otherwise communicated during that period of time. The chairperson of the Board of Directors calls for a vote on the janitorial service contract. According to W.G.C.C. regulations, the board must unanimously approve contracts with the business community. Finnegan is perplexed. If he votes and says nothing about his kinship to Deere, he still feels he can “sleep at night,” since he will not receive any financial gain from the contract. If he discloses his kinship to Deere, he fears that Deere’s business opportunity will be jeopardized. Does Finnegan have a legal obligation to disclose his relationship to Deere? Would it be a “conflict of interest” for Finnegan to vote in favor of the contract? Does he have an ethical obligation to disclose the relationship?

Explanation / Answer

Yes,Finnegan has a legal obligation to disclose his relationship to Deere.It is a fiduciary responsibility of a director to declare any direct or indirect interest in proposed transaction or contract,whethert he is paid or unpaid.In this case though Finnegan and his cousin Deere has not seen each other or talked since years but still Finnegan may have an indirect interest in this contract which he is legally obliged to disclose to the board of directors as a part of his duty and responsibility.

Yes,It would be a conflict of interest for Finnegan to vote in favour of the contract.Because Fennigan has an indirect interest in the contract because of his relationship with Deere,though he is not going to gain any financial benifit out of the contract.Here Finnegan's personal interest conflicts with his responsibility as a board member.

Yes,he also has an ethical obligation to disclose the relationship

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