A director recommends a contractor and everyone around the table knows the director's sister owns the business. Because the relationship is common knowledge, the chair decides that there is no need to mention it formally. The contractor's price may be reasonable and the work may be excellent. That doesn't settle whether the director handled a legal conflict correctly.
Section 120 of the Canada Business Corporations Act requires directors and officers to disclose the nature and extent of specified interests in a material contract or transaction, in writing or through the directors' meeting minutes. It also regulates when disclosure must occur and when a director may vote. Federal business corporations fall under this law, while charities, provincially incorporated companies, nonprofit organizations and condo corporations may be governed by different rules.
Make the decision intelligible
The board should know what relationship exists and when the director became interested. A vague notation that a member has a conflict doesn't identify its nature or extent. The secretary's record should document the disclosure and the steps taken to manage the decision, including whether the interested director withdrew from voting under the applicable rule.
The board's next question is about the proposed transaction itself. Are quotes comparable? What work is required? Who approved the procurement criteria, and could an unrelated bidder realistically compete? Disclosure isn't a substitute for deciding fairly whether the contract serves the corporation.
There may be statutory exceptions for voting in certain types of contracts, and a properly disclosed related party contract isn't automatically invalid. That is why repeating a general rule that an interested director must always leave every discussion would also be misleading. The institution needs the actual statute and its governing documents.
An effective board minute doesn't try to predict litigation. It explains who had authority, what information was disclosed and why the remaining decision makers thought the arrangement was justified. That record is much more valuable than a belated assertion that everybody trusted the people involved.