Conflict of Interest Scenarios


4

Do any of the following six scenarios give rise to Conflict of Interest, for me and my company and/or for the other person and his company:

  1. I appoint a well-connected professional on my company's Tech Advisory Board, awarding him some company stock. This person helps me with business development, introducing me to useful contacts as well as sharing insights on industry trends and product development strategy. Sooner or later, our interactions lead to contracts of work for my company from the company he is working for, and/or from the companies he worked for previously.
  2. I pay a well-connected professional (working for another company) as a short-term business consultant. This person introduces me to useful contacts, and as well shares insights on product development. Sooner or later, our interactions lead to contracts of work for my company from the company he is working for, and/or from the companies he worked for previously.
  3. I appoint a colleague and fellow-entrepreneur (who has his own startup) on my Tech Advisory Board, awarding him some company stock. Sooner or later, our interaction leads to work contract from his company to us, with our software being licensed to them and revenue being shared.
  4. I employ a colleague and fellow-entrepreneur (with his own startup) as a short-term business consultant. While helping my company endeavors, he gives us a work contract from his company, with revenue potential from them to us.
  5. Another colleague and fellow-entrepreneur is keen on having me help his company with their stealth-mode project. I render the help pro bono, or at the most, he gives me some of his company stock. I may or may not be officially appointed to his tech advisory board. Sooner or later, I bring a work opportunity for my company from his, leading to partnered development, licensing our technology to them, revenue sharing and IP sharing.
  6. A close blood-relative of mine has a marketing research firm. I pay this person/his firm for some marketing research for my company, not considering other qualified firms to conduct the same work.

Legal Conflict Of Interest

asked Mar 13 '11 at 12:41
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Aaron Smothers
56 points

2 Answers


2

I read each of these scenarios and said "Fantastic -- what a great way to pull yourself up by your own relationships."

I am not a lawyer -- so this is not a legal dissertation on conflict-of-interest. this is based on years of experience of paying lawyers a lot of money. This is the distillation I have come out with:

Of course there are "conflicts-of-interest" in all of these. We are all complex people with overlapping interests -- financial, family, fortune. And often we have to make choices when these different interests come into conflict. We make a choice, we decide and the we DISCLOSE.

A "conflict-of-interest" doesn't necessarily mean -- "Don't do" --but it always means "Disclose " In each of the scenarios that you identified there will be a critical point that the individual who recommended, contracts or referral you that they will need to disclose their fiscal/contractual/family relationship to you. There may be cases where such a reccomendation, contract or referral will not be allowed by the other company in accordance with their own policies-- but don't let that predetermine the association with valuable talent that can help you grow your company.

Just be diligent in disclosure. If any of the individuals that you propose associating with want it or need it to be "secret" -- well, that probably isn't a good relationship to get into. (Just ask my friend who found out he secret boyfriend was married) A good way to accomplish this is to add these people to an adivsory board -- which is published on your website -- with their other associations listed (for association purpose only). The process of them agreeing, or getting permission as needed will faciliate the neccessary disclosure.

answered Mar 22 '11 at 03:11
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Joseph Barisonzi
12,141 points
  • That's terrific advice! There is a fair likelihood of each of the scenarios in my current startup endeavor. Much as I would like my startup to benefit from the relationships, I am mindful of legal implications for both parties. I suppose a proper disclosure (by both parties) will "let me have the cake and eat it too", in the sense of benefitting from the relationships while preserving legality. The key here is proper disclosure. Thanks! – Aaron Smothers 8 years ago

1

1 to 5 give rise to conflicts because the other person has worked or is working for someone else. 6 is problematic for a different reason: it's usually not a good idea to hire relatives.

answered Mar 14 '11 at 05:52
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Isolde100
41 points
  • Thanks! How about a seventh scenario: I am a co-founder of a startup. I personally make a small 'angel investment' in another startup of a friend. Down the road, I develop a business relation with that startup for licensing my technology to them and doing partnered development, with revenue and IP sharing potential... – Aaron Smothers 8 years ago
  • That is how every giant successful VC firm works. Incest abounds. – Kenneth Vogt 8 years ago

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