At first glance, this looks like a matter of missing paperwork: record the conflict, formalise the approval and move on. But the absence of documentation is only the visible part of the problem. The harder question is what it says about a board that has known about a significant related-party arrangement for years and allowed it to become business as usual.
The CEO’s ownership of the supplier does not, in itself, make the arrangement improper. Founder-led businesses often develop through practical solutions that made sense when the company was smaller. The supplier may genuinely be reliable, competitively priced and important to operations. It is also possible that the business has received better terms than it would have secured elsewhere. A board should not terminate a commercially valuable arrangement simply to demonstrate its independence.
However, commercial benefit does not remove the conflict. The CEO is on both sides of the transaction: responsible for acting in the company’s interests while also standing to benefit personally from the supplier’s success. Fair pricing addresses only one part of that concern. It does not answer who selected the supplier, whether alternatives were properly considered, whether the CEO influenced approvals, or whether management and procurement staff felt free to challenge the arrangement.
The fact that the board knew about it does not cure those weaknesses. Awareness is not the same as disclosure, and disclosure is not the same as approval. A properly governed related-party transaction should be openly declared, recorded, considered by directors who are free from the conflict, and kept under review. The conflicted director should take no part in the decision. Without those safeguards, it is difficult to show that the company’s interests were independently protected, even if the price later appears reasonable.
The board’s failure to deal with the arrangement earlier also raises a wider concern about governance culture. When an obvious conflict involving the founder-CEO is treated informally, employees notice where the real boundaries lie. Procurement staff may conclude that established controls do not apply to the founder. Other executives may feel entitled to pursue similar arrangements. People who question the practice may learn that certain subjects are better left alone. The risk is not confined to one supplier; it is that exceptions made around the founder begin to shape how authority is understood throughout the company.
That matters particularly in a business of 300 employees. Practices that may have been tolerated during the company’s early years should not continue unchanged as the organisation grows. Greater scale brings more employees, external stakeholders and financial exposure. It also creates distance between the founder and the transactions beneath them, making reliable systems more important. “This is how we have always done it” is not a sufficient control environment for a company of this size.
For the new director, raising the matter privately with the chair is a sensible first step, but only a first step. It allows the director to understand the history, establish what the board believed it had approved, and avoid making allegations before the facts are clear. The conversation should also reveal something important: whether the chair recognises the governance issue or simply regards it as an inconvenient challenge to a longstanding arrangement.
The director should, however, not allow the matter to remain in a private conversation. There is no formal record of the conflict, recusal or approval, and that gap belongs before the board. The arrangement should be formally tabled so that the board can establish what happened, decide whether it remains in the company’s interests, and put an appropriate process in place. Bringing it to the board is not an accusation against the CEO. It is the minimum required to move the transaction from informal acceptance to accountable oversight.
The board should then establish the full picture. This includes the financial significance of the relationship, the profits earned by the CEO-owned company, how prices and terms compare with the market, how the supplier was originally appointed, who approved subsequent purchases, whether credible alternatives exist, and whether the company’s financial, tax and contractual disclosures have been complete. It should also determine whether the CEO’s involvement affected the independence of procurement or management decisions.
An immediate external investigation is not necessarily the right starting point. It may be disproportionate if there is no evidence of overcharging, concealment or compromised procurement. But an independent review becomes appropriate if the records are incomplete, the chair or CEO resists scrutiny, the arrangement is financially significant, or there are indications that the company suffered a disadvantage. Independence should respond to the risk revealed by the facts, not be used merely to create the appearance of toughness.
The eventual outcome need not be termination. If the arrangement is demonstrably beneficial, the board may decide that it can continue under proper controls: full disclosure, CEO recusal, approval by independent directors, competitive benchmarking, defined contract terms and periodic review. If the supplier cannot withstand that scrutiny, the relationship should not continue simply because it is established or convenient. Where the process has been compromised, or the CEO has benefited unfairly, the board will also need to consider consequences beyond procurement.
The new director should therefore resist both extremes. Quietly accepting the arrangement would make them part of the same governance failure. Demanding an immediate investigation before understanding the facts could make it harder to secure the board’s engagement and may unnecessarily disrupt the business. The stronger course is to understand first, formalise promptly, and escalate as the facts reveal.
The defensible posture is to raise the matter with the chair and ensure it reaches the board. The immediate objective is not to end the supplier relationship; it is to subject it to the independent scrutiny it should have received from the beginning. Whether the arrangement survives should depend on the evidence. What should not survive is the idea that board awareness alone is enough to govern a founder’s conflict.
Director Perspectives
A selection of perspectives on the dilemma.
“I would initially raise the matter privately with the chair to understand its history and whether it had previously been discussed. The aim should not necessarily be to terminate an arrangement that is working well, but to move it from an informal process with clear conflict concerns to one that is properly governed, documented and independently overseen.” Funlola Aduwo
“As an independent non-executive director, the new director’s obligation is to the company. The matter should be formally tabled so that due process and the relevant documentation can be put in place. The culture also matters: if 300 employees see the founder benefiting from the company while ordinary controls are not followed, what prevents others from doing the same?” Josepha Ndamira
“The board is aware of the conflict and has supported the current arrangement. That does not necessarily make it improper, but the questions already considered by the board should now be formally recorded, with the CEO excluded from the deliberations. The supplier should then be assessed under an approved procurement policy and either approved or replaced.” Kofi Fynn