7. May 2026

Conflicts of Interest on the Board of Directors – Duties, Risks and Practical Guidance

Board members frequently find themselves at the intersection of competing interests, particularly when they are simultaneously shareholders, members of the board of a business partner of the company, or members of another governing body. With Art. 717a CO, the legislator has in principle expressly codified the duties governing conflicts of interest, while leaving the specific measures to be taken open. In practice, the proactive disclosure of a conflict, the choice of adequate measures and the thorough documentation of the process are decisive for the protection against personal liability and the strengthening of confidence in corporate governance.

What constitutes a conflict of interest?

A conflict of interest occurs when a board member must decide on a matter in which the company’s interests are at odds with the member’s personal interests or other interests represented – with an intensity that jeopardizes, or at least creates the appearance of jeopardizing, impartial decision-making in the interest of the company. The conflict may be triggered by an actual collision of legal duties as well as by conflicting third-party economic interests or moral obligations.

Not every personal connection amounts to a conflict of interest. Where differing interests are present but do not reach a level that would seriously impair independent judgment, one speaks of a mere touching of interests. Such a situation is generally assumed where a potential benefit to the board member, or to a person closely associated with him or her, does not pose a direct risk to the company’s interest.

In practice, conflicts of interest manifest themselves in a wide variety of situations. For instance, when a board member enters into a contract with the company on his or her own behalf, or participates in decisions concerning his or her own remuneration. Parallel mandates with competitors or business partners of the company also harbor conflict potential. The same applies to close personal ties – for example to family members or long-standing business associates – whose interests may influence the decision-making process.

Duty of disclosure and measures

The law obliges every board member to make an active and immediate disclosure. If a member identifies a conflict of interest, he or she must report it to the board without delay and on his or her own initiative. Often, the notification is first addressed to the chairperson of the board.

Based on this notification, the board must take appropriate measures. The law does not prescribe specific steps and does not impose a mandatory duty of recusal. This is also because not infrequently the affected member possesses the greatest expertise, and a premature recusal may be detrimental to the company.

Depending on the intensity of the conflict, the board has various instruments at its disposal:

• As a preventive measure, it is advisable to adopt organisational regulations that set out clear rules for dealing with conflicts of interest and preferred approaches for resolution;
• In the case of a dual resolution, the affected member participates in the deliberation and vote; however, in addition to the affirmative decision of the full board, the approval of the majority of the non-conflicted members is required;
• An independent expert opinion may be obtained confirming that the transaction is concluded at arm’s length on market terms;
• The transaction may be submitted to the general meeting for approval;
• In the case of a simple recusal, the affected member abstains from the deliberation and vote but is informed of the subject matter and outcome of the decision and is subsequently granted access to the minutes;
• A qualified recusal goes further and provides for complete isolation. The affected member neither participates in the deliberation nor in the vote, does not receive an invitation or meeting materials, and has no access to the relevant minutes.

Risks of inadequate handling

If the board makes a decision under the influence of a conflict of interest and this results in damage to the company, the board members concerned may be held liable both to the company and to individual shareholders (Art. 754 CO). However, not every suboptimal or incorrect decision results in damage. Moreover, it is difficult in practice to prove that a conflict of interest was the cause.

Further possible legal consequences include:

• Claims for restitution against the recipients of benefits (Art. 678 CO);
• Nullity of board resolutions in exceptional cases (Art. 706b CO by analogy);
• Organisational deficiency in the event of a persistent conflict (Art. 731b CO);
• Criminal consequences such as the charge of criminal mismanagement (Art. 158 SCC).

Conflicts of interest cannot be avoided, but they can be managed professionally

Conflicts of interest on the board of directors can often not be avoided – but they can be managed professionally. Precisely because the law grants the board considerable discretion in choosing the appropriate measures, a well-considered governance practice is essential: Those who disclose conflicts early and transparently, differentiate appropriately between the various instruments – from dual resolutions to qualified recusal – and document the steps, not only reduce their own liability risk but also lay an important foundation for fostering confidence in corporate governance.

For further information, please contact:

Kristina Probst, Associate