<p>There is a potential conflict of interest (not only for a chairman but also for any director or employee who owns shares in the company) arising from the possibility of insider trading.  Suppose the chairman of a quoted company has a large shareholding and, through their position, becomes aware of information, not yet disclosed to the market, that means the company's prospects are not as good as previously believed.  They might then want to sell shares immediately, rather than waiting until the information has been disclosed and as a result the share price has fallen.</p>

<p>Since directors including chairmen are supposed to act in the interests of the company and its body of shareholders, there are two possible conflicts here.  Firstly, by focussing on whether to sell their own shares and arrangements for doing so, a chairman might neglect their duties to the company at a critical time for it.  Secondly, the selling of a large block of shares would tend to depress the share price to the detriment of other shareholders.</p>

<p>This is not to say that a chairman should not hold shares. A relatively small shareholding would be unlikely to give rise to a serious conflict of interest. In many countries (see <a href="https://en.wikipedia.org/wiki/Insider_trading#By_nation" rel="nofollow">here</a>) the issue has to some extent been addressed by making insider trading illegal (although the detailed rules differ between countries).</p>

CC BY-SA 3.0
2016-04-18T09:25:01.860Z
2016-04-18T09:25:01.860Z
Adam Bailey
<p>There are some clear conflict of interest with when a person simultaneously holds a director position and is also part of the management, as CEO for example. We would clearly have a conflict of interest as the board should make decisions for the benefit of the shareholders, and the CEO has to rule the company. On top of this an incompetent CEO, who is also on the board of directors, is hard to fire.</p>

<p>I wanted to know if there is any governance problems or conflict of interest, in the case where a shareholder or a trustee, also occupies the role of chairman of the board of directors.</p>

<p>Thank you for your help.</p>

CC BY-SA 3.0
2016-04-18T10:14:03.413Z
Many argue that far bigger problems arise when the owners are **not** the managers.
410 gone
<corporate-governance>
Problem if Shareholder is a Director
Denis Davydov
# Problem if Shareholder is a Director

(Asked by: username_0 on 2016-04-17)

There are some clear conflict of interest with when a person simultaneously holds a director position and is also part of the management, as CEO for example. We would clearly have a conflict of interest as the board should make decisions for the benefit of the shareholders, and the CEO has to rule the company. On top of this an incompetent CEO, who is also on the board of directors, is hard to fire.

I wanted to know if there is any governance problems or conflict of interest, in the case where a shareholder or a trustee, also occupies the role of chairman of the board of directors.

Thank you for your help.

**Tags:** corporate-governance
> **Comments:**
> **username_1**: Many argue that far bigger problems arise when the owners are **not** the managers.  

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## 1 answers

### Answer by username_2 on 2016-04-18. Score: 1 | Accepted answer

There is a potential conflict of interest (not only for a chairman but also for any director or employee who owns shares in the company) arising from the possibility of insider trading. Suppose the chairman of a quoted company has a large shareholding and, through their position, becomes aware of information, not yet disclosed to the market, that means the company's prospects are not as good as previously believed. They might then want to sell shares immediately, rather than waiting until the information has been disclosed and as a result the share price has fallen.

Since directors including chairmen are supposed to act in the interests of the company and its body of shareholders, there are two possible conflicts here. Firstly, by focussing on whether to sell their own shares and arrangements for doing so, a chairman might neglect their duties to the company at a critical time for it. Secondly, the selling of a large block of shares would tend to depress the share price to the detriment of other shareholders.

This is not to say that a chairman should not hold shares. A relatively small shareholding would be unlikely to give rise to a serious conflict of interest. In many countries (see [here](https://en.wikipedia.org/wiki/Insider_trading#By_nation)) the issue has to some extent been addressed by making insider trading illegal (although the detailed rules differ between countries).


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