Our previous BLOGS have alerted a need for good governance in organisations, whether they be not-for-profit or for profit, primarily focusing on the efficiency and effectiveness of meetings. The purpose of this BLOG is to alert you to issues concerning conflicts of interest, specifically in the scenario when a board member’s personal interests are in conflict with their responsibility to act and make decisions in the best interest of the organisation.
At times a conflict of interest may be obvious and easily removed or remedied. A good example is when an agenda item is to consider, discuss and agree upon the salary of a current board member. Obviously for the person in question there is a conflict of interest in respect to this agenda item. To remedy this they can simply remove themselves from the meeting as the topic is being discussed and voted upon.
Other times however, the conflict of interest isn’t as easily identifiable and the solutions are not so simple.
This is due to the fact that conflicts of interest do not just entail when a person is being influenced by a conflict of interest, but also if they could be or even if they could appear to be being influenced.
For example: a board member may have the responsibility to put out to tender and also review the various tenders from service providers for services that the organisation outsources. One of the Tenderers is a business that also happens to employ a family member of that particular board member. The board member may consider this fact consider that no conflict of interest exists and as they believe they are able to make an unbiased and impartial decision. The important thing here however is not whether the board member is convinced that their decision making capacity is not compromised but whether an independent onlooker in possession of all the facts may believe that the board member has a conflict of interest. One of the goals of confronting Conflicts of interests is to promote transparency and the capacity to demonstrate that the right thing has been done. As helpful reinforcement, according to the Australian Charities and Not-for-profits Commission (ACNC) the question to ask is “would a reasonable person (properly informed about the nature of your personal interests) believe that you might be influenced by your personal interests when making decisions on behalf of the charity” or in your case, possibly the organisation.
If conflicts of interests are not identified, prevented and dealt with effectively they can have a destructive effect on the health of an organisation. Conflicts of Interests can lead to organisational disputes, a lack of informed decision making and consequently damage an organisation’s reputation. Put simply, a disregard of the need to plan for and appropriately respond to and remove conflicts of interest where possible is poor governance and places an organisation at serious risk of not complying with its legal obligations. Dealing with these issues is about understanding our own biases and working together make the best possible decisions.
A Policy and register of Interests
The first step in dealing with conflicts of interest is to have a conflicts of interest policy as well as a register of interests. For not-for-profit organisations a policy in this area helps all members fulfil their duties under governance standard number 5: the Duties of Responsible Persons.
It is important that all organisations adopt a Conflict of Interest policy to assist in clarifying and agreeing how the board will identify and manage any conflicts of interest among its members. A good Conflict of Interest Policy will also outline clear procedures of how to respond to conflicts as well as set out the organisation’s expectations in terms of the reasonable disclosure of personal interests of its members.
If you are a part of the governance for a not-for-profit organisation then the ACNC has put together a template for a conflict of interest policy which you can download or view here. Keep in mind that the template should be adopted to meet the needs of your organisation.
Also the Governance Institute of Australia (within its Good Governance Guide) states that in any form of governance, “it is important to ensure that the adequate policies, particularly dealing with conflicts of interests and whistle-blowing, are established and circulated throughout the organisation.”
A Policy should include:
• The Objective of the policy, which may be to prevent and manage conflicts of interest
• The scope of the policy, which is who it applies to,
• Any relevant legislative framework behind the need for the policy, for example sections 191-195 of the Corporations Act which deals with conflicts of interest,
• Definitions: of conflicts of interests and any other relevant topics,
• A Disclosure policy, this outlines the guiding principles for the disclosure of personal interests that have the potential to result in a conflict of interest,
• A Disclosure Procedure which describes how, when and to whom the disclosure is to be made,
• The Level of Confidentiality of disclosure, this supports board members to disclose information by outlining the level of confidentially relating to their personal interests,
• Identify failures to disclose,
• Consequences of the failure to disclose, and a
• Response procedure, describing how the company deals with a conflict of interest.
We also recommend that a Register of Interests for board members sits alongside the organisation’s Conflict of Interest policy. The Register of Interests is a document that records any relevant interests of board members and the steps which have been taken to manage them. This allows a board to identify any conflicts of interests before they become major problems. How to use the Register of Interests should also be incorporated into the Conflict of Interest policy.
We recommend that a Register of Interests include the following:
• The name of the board member
• The date of their appointment
• Detail of any identified interests
• The relationship or nature of the interest (If applicable)
• Date of disclosure, and
• Steps taken to prevent or manage the conflict, if any.
The Register should also be reviewed at regular intervals to ensure that the interests recorded in it are current, relevant and complete.
Under the Corporations Act and the ASX listing rules certain disclosures are necessary by law, however for many organisations having a register of interests is not a legal obligation. That said we believe that it is a valuable tool for all organisations. If you would like specific advice regarding a conflict of interest issue, policies or registers of interests please contact us at Tri-meridian. We can advise you on your next step.
For further information, please contact the author.
This article is posted in Adelaide, South Australia by Tri-meridian Corporate & Commercial Law and is intended to be used as a guide only. It is not, and is not intended to be, advice on any specific matter. We do not accept responsibility for any acts or omissions resulting from reliance upon the content of this article. Before acting on the basis of any material in this article, we recommend that you consult your professional adviser.