As we have previously discussed a conflict of interest may occur 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. Although conflicts of interest do not just arise 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 more information see our past BLOG here.
Not every situation contains an easily identifiable conflict or an obvious or straightforward response or remedy.
Sometimes there is seemingly no way to make a decision that is completely free from any conflicts of interest.
Although what an organisation can do is make every attempt to be prepared for when conflicts of interests do arise. In some cases conflicts of interest cannot be avoided completely, although an organisation can take steps to prevent them and be prepared to face them when they do arise.
In this short Blog we will be outlining several ways in which you can begin to prepare your organisation to deal with ambiguous situations that may arise. We will be discussing several ways in which you can prepare through early Identification, Prevention and Management.
To start with make sure you have a Conflicts of Interests policy in place as well as a register of interests. Implementing these is the first step to preventing and preparing for conflicts of interests. For a more detailed explanation of both please see our past BLOG here.
Once you have a policy in place then it is important that you take further steps to identify conflicts of interest, prevent them and then take the appropriate steps and be prepared to manage them when they arise.
Identifying conflicts of Interest
The first step in proactively approaching future conflicts of interest is identifying them. You can start doing this by acknowledging that there are and will be conflicts of interest in your organisation. Your organisation has a purpose, and the people in governance have responsibilities, as well as personal interests to go along with them; and in any situation where all these things exist, so will a conflict of interest at some point.
In light of this it is important to identify where the conflicts of interest may arise. To do this you must understand the purpose of your organisation, why it has been set up and what it hopes to achieve. Board members have a responsibility to make decisions in the best interest of the organisation and its purposes, conflicts of interest will arise when a member’s personal interest is in conflict with this responsibility to act in the best interest of the organisation.
Identifying the organisations purpose as well as members personal interests (in a register of interests) will allow an organisation to identify where there will be discrepancies and a possible conflict.
Preventing Conflicts of Interest
Identifying these issues and areas of concern will take you a long way in terms of preventing the Conflicts of Interest as well. Two ways in which you can further enhance this process is to;
- Promote a culture of disclosure, and
- Be proactive in managing these foreseeable conflicts of interest.
Promoting a culture of disclosure in an organisation encourages members to be open about their interests and ensures that they feel safe in doing so. One thing that can help in doing this is making it clear within the conflicts of interest policy that member’s personal interests will remain confidential. It is also recommended that a review of the register of interests is made before every meeting. This ensures that it is up to date and also keeps the issue of conflicts of interest as a regular topic of discussion and in the forefront of members’ minds.
Secondly, if a possible conflict of interest will arise in relation to an agenda item, boards have the opportunity to manage them before they become an issue. This may include asking the conflicted member(s) to be absent from certain parts of the meeting and knowing in advance not to send sensitive information on that agenda item to the conflicted parties. Being preventative when it comes to conflicts can go a long to avoiding issues and stress in the future.
Managing Conflicts of Interest
The last step is having a clear plan on how to manage these conflicts if they do arise and are unable to be prevented. This procedure should be included in the conflicts of interest policy and understood by all members. As a general outline the ACNC has provided a 4 step process which is as follows:
1.Identifying the issue and the conflict of interest;
This may be the board member personally identifying that they have a conflict of interest or the board identifying one due to the register.
2. Notifying the board;
The conflicted board member should notify the board immediately if they have identified a conflict.
3. Determining an appropriate remedy;
The remaining board members should determine an appropriate remedial action as to remove the conflict of interest from any decisions which are to be made.
[In some cases the entire board may find that they in fact all have an inherent conflict of interest. In this case a reasonable remedy may be the use of an independent party. For example the use of a third party to evaluate an asset that cannot be done so by a member of the organisation without conflict].
4. And then, informing the member(s) of the outcome.
The remaining board members should then inform the conflicted board member of the outcome that has been decided upon.
If you would like specific advice regarding a conflict of interest issue, policies, registers of interests or how you can plan to prevent and manage them, then 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.