13 February 2017 #Corporate
Conflicts of interest issues can arise under a variety of circumstances, even in corporate transactions where parties may have alternative motives to complete the deal. To mitigate the risk of a conflict of interest arising and avoid breaching ethical or fiduciary duties, companies should strive for transparency.
Conflicts of Interest
Conflicts of interest do not usually refer to conflicts between two people. Instead they relate to situations where private interests conflict with professional interests and responsibilities. For example, a board of directors owe duties to their company. If they take advantage of business opportunities to the detriment of the company, there could be a conflict issue.
Closely related to conflicts of interests are fiduciary duties. A fiduciary has an obligation to act in the interests and for the benefit of his beneficiaries, principals, clients or fellow partners.
Fiduciary duties are based on four basic rules, all of which are strictly imposed:
Formula 1 Acquisition
The £6.4bn acquisition of Formula 1 (F1) by Liberty Media Corporation was subject to numerous hurdles, including the requirement that the F1 regulatory body, Fédération Internationale de l'Automobile (FIA), approve the buyer.
In January 2017, the FIA released a statement approving the sale to Liberty Media Corporation, having been satisfied that Liberty, as a renowned media organisation with expertise in both sport and entertainment, is well positioned to ensure the continued development of the F1 championship.
Prior to FIA’s approval of the buyer, The Economist highlighted the potential conflict of interest in FIA’s decision-making. Though it is unclear whether the FIA board of directors, as a regulatory body, would even owe fiduciary duties, The Economist argued that the FIA had a financial incentive to approve the buyer because it holds a cut-price 1% stake in the controlling parent company of F1 (Delta Topco Limited) that becomes monetised if F1 is sold.
In corporate deals, companies should always be sensitive to conflicts and be aiming to demonstrate full transparency. As a starting point, we recommend conducting the appropriate due diligence to uncover any issues that may not be apparent on the surface.