Conflicts of interest are often discussed as though their mere existence signals a failure of governance. But is that fair – or even practical? In a relatively interconnected business community, directors, executives and advisers routinely bring professional relationships, investments, outside appointments and specialist knowledge to their roles. Some of these connections create conflicts. They can also be part of what makes a person valuable to an organisation.

The important distinction is between the existence of a conflict and the way it is identified, assessed and handled. Not every conflict involves wrongdoing; equally, not every conflict can be managed simply by disclosure or abstention. The objective is neither blanket tolerance nor blanket prohibition. It is lawful, proportionate and demonstrably sound decision-making.

What exactly is a conflict?

A conflict of interest arises where a person’s personal interest may compete with their duty to an organisation. The interest may be financial or non-financial, direct or indirect. A conflict of duty can also arise when someone owes obligations to two organisations whose interests diverge – for example, a director serving on both sides of a commercial negotiation.

Governance policies commonly distinguish actual, potential and perceived conflicts. These are useful operational categories, although they are not interchangeable with the statutory concept of a “material personal interest”. An actual conflict need not involve a corrupt act: the competing interests or duties may already exist even before an improper decision is made. A perceived conflict turns on a credible appearance of compromised judgement, not merely speculation or cynical suspicion.

Consider a non-executive director who also sits on a supplier’s board. Their experience may help the company understand an industry, but the relationship becomes particularly sensitive when the supplier bids for a significant contract. The director may then face a conflict of duty, information restrictions and – in some circumstances – a material personal interest. Different issues require different responses.

The law does not impose a single, universal rule

Australian governance obligations depend on the entity, the role and the circumstances. For companies, directors’ statutory duties under sections 180–183 of the Corporations Act 2001 (Cth), fiduciary obligations and any constitution or applicable regulatory requirements must be considered together.

Section 191 generally requires a director with a material personal interest in a matter relating to the company’s affairs to notify the other directors, unless a statutory exception applies. Section 192 permits standing notices meeting its conditions. Section 193 makes clear that the disclosure provisions operate in addition to general-law obligations and relevant constitutional restrictions. A standing notice is not a permanent substitute for revisiting an interest when a particular board decision brings it into focus.

One important distinction is frequently overlooked. Section 194 is a replaceable rule concerning voting and transactions involving interested directors of proprietary companies. Its application depends on the company’s constitution and whether replaceable rules apply. By contrast, section 195 generally prohibits a director of a public company with a material personal interest from being present while the matter is considered or voting on it, subject to specified exceptions. If disinterested directors cannot form a quorum, statutory pathways – including referral to a general meeting – require careful examination. These rules cannot be summarised as “declare and carry on”.

Additional regimes may impose tougher or different requirements. Public-company related-party financial benefits can trigger Chapter 2E of the Corporations Act, including member approval requirements and exceptions such as arm’s-length terms; listed entities must also consider relevant ASX Listing Rules. An AFS licensee must maintain adequate arrangements to manage conflicts under section 912A(1)(aa), informed by ASIC’s revised Regulatory Guide 181 (December 2025). Registered charities must address the ACNC Governance Standards, especially Governance Standard 5; public-sector officials operate under separate statutory and integrity frameworks. The fourth edition of the ASX Corporate Governance Principles remains operative while the proposed fifth edition is under consideration.

Why conflicts arise – and why some connections can be valuable

In specialised industries, the people with the deepest expertise may also have extensive business relationships and multiple appointments. This is not unique to Australia, although a concentrated market and overlapping professional networks can make the problem more noticeable. A blanket prohibition on every competing interest would unnecessarily shrink the available talent pool, disrupt group governance and potentially sacrifice commercial insight.

There may therefore be a benefit associated with a relationship that also creates a conflict: access to skills, sector understanding, networks or informed challenge. But it is important not to confuse the benefit of the relationship with the conflict itself. The conflict is a risk to manage, not an advantage to celebrate. Genuine commercial benefits do not displace duties of loyalty, confidentiality, proper purpose or care.

Materiality: a useful test, not a numerical shortcut

The Corporations Act does not prescribe a universal monetary or percentage threshold for “material personal interest”. Materiality is context-specific. An interest may be significant because of its financial value, a family or commercial connection, its capacity to affect judgement, or the importance of the matter to the individual or company. The statutory test and a board’s broader governance-risk assessment are related, but distinct.

A small investment in a widely held listed supplier might pose minimal risk in one setting, while an otherwise modest interest in a crucial tender or the employment of a close family member could be highly significant in another. Conversely, a director’s broad expertise in an industry does not automatically create a disqualifying conflict in every matter involving that industry.

Boards should consider the nature and proximity of the interest; the likelihood that competing duties will arise; the significance of the decision; access to confidential information; potential effects on independence and public confidence; the legal framework; and the effectiveness of available controls. When the answer is uncertain, obtaining timely independent legal advice may be proportionate to the risk.

A practical spectrum of responses

The following is a decision framework, not a statutory classification. Legal requirements must always take precedence.

Situation

Possible response

Low-risk overlap

Disclose in accordance with policy, assess whether a conflict exists, document the conclusion and monitor changes.

Manageable conflict

Full disclosure; conflict-specific assessment; independent deliberation or review; restricted information access; recusal where required; ongoing monitoring.

Material or structurally difficult conflict

Consider independent negotiation, external valuation/advice, formal approvals, ring-fencing or divestment; determine whether the person can continue in the relevant role.

Prohibited or unmanageable conflict

Do not proceed in the proposed form; remove the person from the role or decision, restructure or abandon the transaction, or obtain other legally available relief.

This proportional approach is not permission to downgrade a legal obligation because a director believes the risk is low. It is a method for choosing safeguards once applicable legal requirements have been established.

Disclosure is necessary – but often insufficient

A declaration should start a process, not end one. The board must assess who can lawfully receive information, negotiate, decide, approve and monitor the matter. Other directors also have responsibilities. An interested director might abstain from voting and still improperly influence the outcome beforehand, receive confidential competitor information, or fail to raise information the board needs to protect the company.

The principle is illustrated by ASIC v Adler [2002] NSWSC 171: where a transaction raises conflict risks, care and diligence require particular vigilance, safeguards and necessary approvals. The case should not be reduced to the simplistic proposition that the mere existence of a conflict establishes a breach; the conduct and duties matter.

Similarly, RBC Investor Services Australia Nominees Pty Ltd v Brickworks Ltd [2017] FCA 756 concerned an oppression claim arising from a longstanding cross-shareholding arrangement. The Federal Court rejected that claim on its facts. It did not create a general rule that profitable companies may overlook conflicts or that good commercial results cure breaches of directors’ duties.

What about shareholder approval – and an entirely conflicted ownership group?

In some circumstances informed shareholder consent or approval forms part of a lawful response, but its legal effect depends on the transaction, statutory requirements, constitution, disclosure, voting exclusions, creditors’ interests and broader duties. The presence of shareholders who are also interested directors does not automatically make member approval ineffective – or automatically sufficient.

For an owner-managed proprietary company, directors may also be its only shareholders. The relevant question is not simply “who else can vote?” but “what approvals and safeguards does the applicable law require, and what can the relevant decision-makers validly authorise?” For a public company or a related-party transaction, requirements may be materially different. If all potential decision-makers are interested, legal advice should be sought before assuming that a unanimous resolution solves the problem. Insolvency concerns, oppression, improper purposes and statutory prohibitions cannot be wished away through paperwork.

What if the conflict comes to light after a decision?

A late discovery should prompt a documented, proportionate review rather than an automatic assumption that the decision is void or can be cured retrospectively. Preserve the original records; identify the interest, what was known and when; assess whether statutory or fiduciary duties were breached; consider the effect on the decision and any contract; prevent further participation where appropriate; and obtain legal advice on remedial steps. Depending on the facts, responses may include fresh independent consideration, further disclosure, rescission or renegotiation, member action, regulatory notification or investigation.

The board should avoid retrospective minute-writing that suggests a disclosure occurred when it did not. Subsequent approvals may be possible in certain circumstances but are not universal remedies, particularly where statutory duties or third-party rights are involved.

Registers and minutes: what good practice looks like

A current register of directors’ interests is valuable, but it does not replace meeting-specific consideration. Organisations may maintain a single integrated interests-and-conflicts register, or separate registers linked to a decision log. Neither architecture is invariably required by the Corporations Act for every company. What matters is compliance with applicable rules, accessibility, confidentiality and an effective audit trail.

For a significant matter, records should identify: the interest and relevant disclosure; when and to whom it was made; the statutory or constitutional participation rule considered; whether the director received papers or was present; the decision on management controls; quorum and voting arrangements; independent advice or approvals obtained; the outcome; and follow-up actions. Minutes should be concise, accurate and contemporaneous, rather than a transcript or an after-the-event justification.

The company secretary can help by keeping declarations current, flagging agenda-specific risks in advance, ensuring quorum and voting mechanics are checked, and recording the process accurately. Ultimate accountability for lawful decisions remains with the relevant directors and decision-makers.

Should boards receive training?

Yes – particularly where directors serve across subsidiaries, joint ventures, charities or regulated businesses. Induction, periodic refreshers and scenario-based discussions can be more effective than reciting policy clauses. Company secretaries, legal and risk teams can explain internal procedures; specialist external advisers can help with difficult questions or legislative developments. Frequency should reflect the organisation’s risk exposure and turnover, rather than an unsupported universal benchmark.

Is Australia too strict – or not strict enough?

International comparisons counsel against sweeping conclusions. The UK Companies Act 2006 expressly deals with directors’ duties to avoid conflicts and provides for board authorisation in defined circumstances. Delaware corporate law also contains detailed approval and fairness mechanisms for interested transactions, including amendments enacted in 2025. Neither model amounts to unconditional acceptance of conflicts. Different statutory structures make a simple ranking of “strictness” unhelpful.

Australia’s differentiated framework is broadly defensible: it recognises commercial reality while imposing duties, procedural protections and additional rules in sensitive sectors. Improvements may lie less in relaxing fundamental duties than in clearer guidance, better implementation, appropriate disclosure channels and more systematic review of persistent or group-wide conflicts. There is no reliable public basis for claiming that all Australian conflicts should be banned, or for quantifying how frequently they arise across all organisations.

The question boards should really ask

Perhaps the question is not whether we should fear conflicts of interest, but whether we are sufficiently alert to them – and disciplined in our responses. Some relationships create benefits and risks at the same time. Responsible boards recognise both, remain sceptical of convenient assurances, and distinguish conflicts that can be controlled from those that must be avoided.

In short: do not stigmatise a declaration; do not confuse a declaration with permission; and never allow commercial convenience to outrank duties owed to the organisation.

Governance in Action Pty Ltd can assist clients in developing, reviewing and/or recommending policies, systems, processes and practices for identifying and managing conflicts of interest in collaboration with relevant advisors.

David Cantrick-Brooks FGIA FCG, Principal & Director of Governance in Action Pty Ltd, would be pleased to assist with enquiries. Please feel free to reach out via LinkedIn or via gia.net.au.

AI-assisted tools and techniques were used here to support the research, drafting and editing of this publication. Responsibility for the final content rests with David Cantrick-Brooks.

Whilst accounting and legal terms and references may be contained in this publication, it does not constitute or purport to be or represent accounting or legal advice of any kind – whatsoever. Readers should seek their own independent professional advice.