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IAI Actuarial Core Principles · Business Finance · Ethical responsibilities of owners and managers

A company's directors approve a large donation to a charity chaired by a director's relative, justified as CSR. Which statement best identifies the ethical issue under good governance principles?

The donation raises a potential conflict of interest. Good governance requires the director to disclose the relationship and abstain from the decision, while the board independently checks that the spend serves genuine CSR objectives. Calling it CSR does not remove the conflict or make it automatically ethical.

  1. AThere is no issue because all CSR spending is automatically ethical
  2. BThere is a potential conflict of interest which should be disclosed, with the interested director not voting, and the spend assessed for genuine CSR benefitCorrect
  3. CThe only issue is that donations reduce reported profit
  4. DThe issue arises only if the donation exceeds the statutory CSR minimum
  5. The issue is resolved if the donation is made after the financial year-end

Explanation

Labelling a payment as CSR does not remove a conflict of interest. Good governance requires disclosure, abstention by the interested director and an independent assessment that the spend serves genuine CSR objectives. The other options ignore the conflict or are irrelevant.

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