ArticlesBoD vs SA: The conflict of interests between them

February 7, 2021by Stavros Koumentakis

The members of the Board of Directors of an SA are elected to serve and promote its corporate interests. However, it is not necessarily true that their personal interest are not in line with that of the company. Even worse: that they are not in conflict with them. This is when we are talking about a “conflict of interests”. How is it delimited? How can anyone manage it? How is it treated? What are the provisions of the law?


The economic point of view

In economics the problem of the principal and the agent (agency problem) is well known. The principal selects the agent in order for the latter to conduct the affairs of the former. The latter (: agent) is responsible for decisions that affect the wealth of the principal. This problem arises when the agent acts on behalf of their client, but acts in a way that does not serve the latter’s interests. According to economists, the main reason for the existence of this problem is the “asymmetry of information”.

There are two categories of problems owed to asymmetry of information. These are: (a) the problem of moral hazard and (b) the problem of adverse selection. Regarding the latter (: adverse selection), we find it in those cases in which the principal, due to the asymmetry of information, chooses as an agent a person who does not have the ability (or the disposition?) To act in the interests of the principal.

The conflict of interest between a member of the Board of Directors and the SA is one of the problems of moral hazard. Specifically, the agent has the opportunity to act in the interests of the principal but chooses to act in pursuit of their own, personal, interests.


The solution to the problem: Corporate Governance and Law of SAs

The (general) solution to the problem of conflict of interest is twofold. The application of the rules of corporate governance on the one hand and the coexistence with the law of the SA on the other.

The application of corporate governance rules is proposed. And this, because through the alignment with them, the transparent operation of the members of the Board becomes possible. And so does the controlled structure of mutual interests.

However, the legislator of the law of SAs also makes more specific regulations concerning the treatment of the problem of the conflict of interests of the members of the Board of Directors with the interests of the company. It is known that each member of the Board of Directors undertakes a fiduciary obligation towards the SA. Its manifestation is the avoidance of conflict of own interests. The legislator has established mechanisms for dealing with such cases of conflict. In order to establish, however, such cases, the corporate and the own interest of the members of the Board of Directors should be conceptually determined.


The corporate interest

It obviously does not make sense in the context of this article to start theoretically wandering between the unitary or the pluralistic theory. Let us limit ourselves to what is, according to the author – in simple words, currently applicated: The corporate interest is nothing but the interest of the SA. We can safely identify it with the interest of its shareholders – as a whole.


The “own interest” of the Board members

The delimitation of corporate interest seems simple. But what is the “own interest” of the members of the Board? The “own” means the direct and personal (eg financial, moral, etc.) interest of a member, whose satisfaction is in conflict with the satisfaction of the corporate interest.

However, the own interest of the board member does not necessarily have to be linked to the member themselves – on a personal basis. In other words, the stakeholder may be a third party. But not any third party. They must be a person with whom the board member is connected in some way and can, presumably, influence them. Precisely because of the specific relationship between the member of the Board of Directors and a third party, the benefit of satisfying the interest of the latter can be reaped, in the end, (even indirectly) by the member of the Board of Directors. Therefore, in order for an “alien” interest to be considered as “own” interest of the member of the Board of Directors, the legal relationship that connects them with said third party must be examined.

The legislator identifies these relationships. It provides, in particular, with cases in which the foreign interest is charged as the own interest of the member of the Board. When, for example, a transaction of the company is imminent with a person of the close family environment of the member of the Board of Directors. Also, with a legal entity controlled by the member of the Board (article 97 §3 in combination with articles 99 §2 law 4548/2018 and 32 law 4308/2015).


Conflict of interest: the spotting of such cases

A conflict of interest, therefore, exists in those cases in which the -necessary for the benefit of the SA- independent judgment of the member of the Board is affected (or may be affected) by the involvement of their own interest. These are the cases where the aspirations of the SA do not coincide (on the contrary: they are in conflict) with those of the member of the Board. Therefore, the satisfaction of one of the mutual interests excludes (in whole or in part) the satisfaction of the other interest.

Such conflicts may have a lasting duration, such as e.g. when the member of the Board of Directors develops an activity competitive to the SA. However, they may also arise momentarily, such as e.g. in cases of the conclusion of a sales contract between the SA and a member of its Board of Directors. However, this conflict must have a certain heft, ie to be “substantial”.

On the opposite side are the distant conflicts, which we do not need to worry about. This fact is also confirmed by the Explanatory Memorandum of article 97 of law 4548/2019. It states, in particular, that insignificant or distant conflicts of interests do not justify the abstention of a member of the Board of Directors from making a decision on the issue in question (which, as we will see later, is the most drastic way of dealing with cases of conflict of interests).

Some cases seem more complicated: What happens when, for example, the member of the Board in which the conflict of interest is located is also a (large) shareholder of the company? Let’s not forget that the vast majority (: 80%) of Greek companies are family businesses…


Conflict of interest: dealing with the cases

Law 4548/2018 deals with cases of conflict of interest in Article 97. It provides, in particular, three basic rules. Specifically: (a) the priority of the corporate interest, (b) the obligation to disclose the case of conflict of interests of a member of the Board, (c) the prohibition of exercising the voting right of a member of the Board whose own interest conflicts with that of the SA.

In addition to the provisions of article 97 of law 4548/2018, the legislator also deals with some special cases in articles 99-101 of law 4548/2018. These are the cases concerning the conflict of interests in the cases of the transactions of the members of the Board of Directors with the SA. This issue, as it is big and interesting, will concern us in our next article.

But let us approach the basic rules of dealing with the conflict of interests:

(a) The priority of the corporate interest

As already mentioned, the members of the Board of Directors are in charge, with their election / appointment, with the fiduciary obligation. An obligation that they must always fulfill towards the SA. Its content is the acceptance of the priority of the corporate interest. Therefore, cases of conflict of interest between an SA and a member of its Board of Directors should always be resolved, according to the legislator, based on the principle of the priority of the interest of the SA.

The legislator, moreover, is absolutely clear: It provides that the members of the Board of Directors (as well as any third party to whom responsibilities have been assigned) must ” … not pursue the own interests that are contrary to the interests of the company” (Article 97 §1 par. a΄ ν. 4548/2018).

However, the above principle does not prohibit the members of the Board of Directors, in advance and in the abstract, from seeking the satisfaction of their individual interests, which are related to the interests of the SA. On the contrary, it prohibits, in particular, this pursuit from hindering, in whole or in part, the satisfaction of the interests of the SA. Therefore: the member of the Board, clearly has the right to act in their own interest. They are entitled, for example, to negotiate the amount of their salary in those cases in which, in addition to their organic position, they are associated with the company with an employment contract or a contract for the provision of independent services.


(b) The obligation to disclose the case of conflict of interest

The legislator has introduced another obligation for the members of the Board, in order to prevent cases of conflict of interest that may arise. This is the obligation of immediate, and sufficient, disclosure to the other members of the Board of the own interests, which are likely to arise in forthcoming transactions of the SA. This corresponding obligation is also borne by every third person to whom responsibilities have been assigned by the Board. This obligation also includes the disclosure of respective interests of any related natural and legal persons (article 97 par. 1 par. b’ of law 4548/2018).

The information must be addressed to all members of the Board. However, no specific type is required. The person in charge of providing the information can choose to communicate the information orally or in writing. Of course, for reasons of proof, the provision of the information in written is preferable (eg its recording in the minutes of the Board of Directors, if it takes place during its meeting or, even better) before the start of the discussion of the issue in question).

However, the information must be provided, in any case, in a timely manner. That is, before the situation of conflict of interests occurs. At the same time, as far as its content is concerned, the information must be sufficient; a mere mention of a possible conflict of interest is not enough. The member of the Board of Directors must describe: (a) the transaction of the company, in which the conflict of interests may arise and (b) their own related interests.

Based on this information, the other members of the Board must be able to come to a substantiated conclusion for the existence of a case of conflict of interest. Also, for the risks that are created for the company.

In case the obligated member of the Board of Directors omits to provide the required information, questions of liability towards the company are raised. If, of course, the other conditions of the generation of any relevant liability are met.


(c) The prohibition of voting

The law provides (article 97 §3 law 4548/2018) the deprivation of the right to vote from the member of the Board, in which the conflict of interests is located. It seems to be the most drastic way to manage such a situation. In this way, the possible lack of objectivity and / or their influence on the other members is addressed.

It should be noted, of course, that the member of the Board of Directors, in whom the conditions for deprivation of the right to vote are met, is not taken into account neither for the formation of a quorum of the Board of Directors nor for the formation of the majority necessary for a decision.

It is even argued that it is not enough for the member whose own interests conflict with those of the company to abstain from voting; they must also abstain from the relevant meeting of the Board. Proponents of this view argue that the member with the conflict may have been working to influence the BoD to act in favor of their (the member’s in question) and not the company’s interests. However, an ex ante, indiscriminate ban on their participation cannot be considered, without any doubt, correct. Let us not forget, after all, that you should never convict someone without hearing their point of view. However, it would be safer to judge on a case-by-case basis the question of the participation (or not) of said member of the Board in a relevant meeting.

The deprivation of the right to vote, however, concerns, as already mentioned, only cases where the conflict of interest is considered significant. The relevant decision rests with the members of the Board. However, a possible incorrect evaluation makes the participation of the interested member of the Board of Directors in the crucial meeting defective. The decision taken at such a meeting does not, however, become illegal (article 102 par. Law 4548/2018). What matters in the end is the importance of the interested member of the Board of Directors for the achievement of the majority, as well as for the (possible) influence they exercised on the other members.

After the deprivation of the voting right of the member of the Board of Directors in question, the other members make the decision. It is, of course, necessary to meet the conditions for forming a quorum for a decision. If the remaining members of the Board, for whom there is no inability to vote, do not form a quorum, they must convene a General Assembly. The sole purpose of the latter will be to take the specific decision for which issues of conflict of interest are raised.



At the civil level, the possible breach of the obligation of the member of the Board of Directors, by avoiding the declaration of conflict of interests, can be the basis for the request for the restoration of the damage that may have been caused to the company. However, the legal consequences that may occur each time depend on the form that the violation will take. Such legal consequences e.g. is the invalidity of the vote of a member of the Board of Directors or, much more, the invalidity of the decision taken by the Board of Directors.

At the criminal level, however, the case of breach of the fiduciary obligation of the article 390 of the Penal Code may also occur. In this case [“whoever knowingly damages the property of another, whose custody or management (total or partial or only for a certain act) they have under the law or under a legal act, is punished…”]. The sentence will be imprisonment of “at least three (3) months” or, in more serious cases, “imprisonment of up to ten years”.

In short: Sanctions do not seem, nor are they, to be neglected…


Joining an SA BoD can often seem like an easy (or plainly for the formalities) affair. Sometimes it can be. Some others, however, it is not. It may even prove to be particularly complicated. The conflict of interest of a board member is in the latter category.

It is not always easy to manage such issues. How easily can one manage such a situation when the board member (with a conflict) is also a shareholder or, even worse, a major shareholder of the company? When the conflict of interests stems from (known or not) competitive activity of the member of the Board?

Conflicts of interest take many forms.

The law (correctly) only in general regulates the issue. The statutory provisions prove to be important. And so do the provisions related to corporate governance rules.

Each case can only be approached and managed individually.

Only then will the result be in favor of the company & its shareholders and, why not, the law.-


Stavros Koumentakis
Managing Partner


P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 7, 2021).


Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

Stavros Koumentakis
Nikis Avenue & 1, Morgenthau st., 54622 Thessaloniki
(+30) 2310 27 80 84

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