How to manage conflict of interest right

One of the hottest topics on today's agenda of the investment community is conflicts of interest. Not only will Donald Trump have more potential business and financial conflicts of interest than any other president in U.S. history, once he starts work in the Oval Office, but there are also a couple of deals at risk because of this issue. 

[Read full article]

First, Tesla-SolarCity merger has been heavily criticized over conflicts of interest right from the start. The Tesla CEO, Elon Musk, after all, owns 19% of Tesla and 22% of SolarCity shares, making him the bigger shareholder of both companies. Aside from that, $2.6B contract would increase the electric car manufacturer's balance sheet, in case you forgot another reason of Silicon Valley style M&A deals.

Another deal at risk is the acquisition of NetSuite Inc., the cloud-computing provider that Oracle is now trying to buy for $9B. Oracle's biggest outside shareholder opposes the deal, because the transaction is rife with conflict for Ellison, Oracle chairman, who became NetSuite’s biggest investor yet 18 years ago. The inherent conflicts of interest between NetSuite, the Ellison entities and Oracle are daunting and may be impossible to manage.  

[...] So how conflicts of interest can be managed?   

Here is an advice we have for you from Michael J. Halloran, a well known corporate securities lawyer in Silicon Valley.

"...Conflicts are to be resolved. In the right way. And once resolved they can be tolerated.

There are two legal issues here. First, if the business of the company being acquired was something in which the acquiring company had an interest in the first place, then under something called the "corporate opportunity doctrine" the CEO or directors or executive officers have a fiduciary duty to offer that company, or an investment in it, to the larger acquiring company, rather than take it themselves at the go down. 

The second legal issue (assuming they get past the first one above) is the sheer conflict from the larger company of which they are a part negotiating for the acquisition of the smaller company in which they are investors. This too is a conflict which can be resolved..."

Further explanation with examples given to our subscribers