Uproar in the Old Dominion

Here in Virginia we’ve had an unusual situation involving potential conflict of interest.  The new governor had nominated as Secretary of Commerce, the state cabinet position charged with economic and business development, a former CEO who sits on the boards of directors of two Virginia-based public companies.  The problem arose because the nominee refused to resign his board seats.  The uproar that ensued brought into question whether an incurable conflict of interest would exist when the state’s chief economic developer also had fiduciary duties to two of the state’s public companies.

Let’s look at the issues.  Corporate directors owe fiduciary duties of care and loyalty to the corporations on whose boards they sit.  In their directorial capacities, they must always act in the corporation’s best interests when considering matters important to the company.  Naturally, conflicts arise, and, when a corporate director cannot act in the company’s best interests, he or she must recuse himself or herself from participating in the conflicted decision.

On the other hand, the Virginia Secretary of Commerce is the state’s chief business promoter.  His full time job is to do what is in the state’s best interest.  Can he take a rest from that on-going responsibility and loyally devote himself to the interests of the companies on whose boards he sits?  The company’s and the state’s best interests at times may be congruent.  However, at other times, policy and specific corporate interest may diverge.

Personally, I think that it would be neither in the company’s nor the state’s interests for a cabinet officer to be a corporate director.  Judging from the response in the local letters to the editor, there was bipartisan feeling on both sides of the issue.  The nomination has been withdrawn, but public opinion hasn’t settled,  I wonder what others think.