Conflicted over Conflicts of Interest

Author: Sandy Thompson LEAD Director & CEO

The recent update of the incorporated Societies Act has shone a light on the issue of members of boards having a conflict of interest when it comes to leading and governing an organisation.

A conflict of interest exists when an individual’s personal interest or loyalties could affect their ability to make a decision in the best interest of the organisation. A conflict of interest may be real, potential, or perceived and may be financial or non-financial.

For example:

• a board member is on two different boards who share a funder and have an overlap of types of programmes or services

• The Treasurer applies for a paid position in the organisation

• The company owned by a board member’s sister is submitting a quote to repair the facilities

• The children of a board member are frequent,  long term users of the service

Conflicts of Interest are not illegal, but law mandates they must be managed appropriately. The new Incorporated Societies Act mandates organisations maintain a register of conflicts of interest. During registration, Charities Services looks for conflicts in the way the organisation is set up and also examines how an organisation describes the management of conflicts of interest in their Constitution or Deed. The Charities website has a LOT of resources and information on the issue which are worth checking out. 

The bottom line is that the authoritative viewpoint in our society regards board members as potentially unable to fulfil their obligation of Duty of Care if they have conflicting interests. Sounds fair enough on the surface, but this is a bleak view of human nature that is  - in itself - a conflict with values of many of our community organisations. There is also a danger that instead of managing conflicts well, we end up trying to eliminate them, which can have the opposite effect and be to the detriment of the organisation.

Conflict of Interest, as a negative phenomenon, is a Western cultural paradigm.  I worked recently with a board that refused to use the word Conflicts of Interest,  instead they use Interests  and espouse the value that the more of them a board member has, the better it is for the organisation. It is these interests that bring networks, influence, discounts, voluntary input, knowledge and wisdom, expertise and skills, talent, and collaboration and partnership opportunities. 

Ultimately, why wouldn’t you hire a board member or their family to carry out some work if you can afford to remunerate someone? The Board member is obviously committed to the mission of your organisation, or they wouldn’t volunteer to be on the board. The very knowledge and skills that brought them onto the board table, might make them the best person for the job. I hear of family members donating to, or giving discounted services and products to organisations when their family members are on boards, far more frequently than I hear about folk gaining financial advantage.

A few years back at a Professional Facilitators Conference in Australia, a keynote presenter suggested that if a facilitator knows anyone in the group or knows anything about the affairs of the group  - or organisation they are working with - then they need to excuse themselves to ensure neutrality of the role. The Kiwis in the room found this hilarious. It is an everyday occurrence for me when working with a group that I will know someone, or know about them or one of their relatives. Lately I have been confronted with the realisation that I am often  working with board members who are friends with one of my children, or their friends. In Aotearoa we have much less than the 6 degrees of separation that others in larger nations experience. Managing conflict of interest is just a way of life for many of us.

The notion of perceived conflict of interest is worth spending some time considering. The reputation of any community organisation is an undervalued asset we take for granted until something goes wrong. In my experience the best way to mitigate the perception of someone gaining advantage, is to be overly transparent. In fact, the new Act dictates this – societies must make their register available to members. A question we often get asked about at LEAD is the process for employing a board member or a person in a board member’s family. We recommend that in order to avoid sideways glances, if you have a written policy, follow a well-documented employment process, record decisions about their appointment and record the conflict in your interests register. 

 At LEAD we have a sample Declaration of Interest document which we are happy to share (email info@lead.org.nz).

It is the management of Conflicts of Interest that is important, not that we don’t have them in our organisations. We can blamelessly and confidently deal with any conflicts by following these three simple guidelines:

1. Conflicts must be identified and declared. This is the first and most important principle. 'Sunshine' is always the best disinfectant and potential conflicts are open and not hidden, they are much likely to be dealt with in a positive way.

2. The conflicted person should usually not be involved in the decision-making about a benefit going to them, to reduce any suspicion of favouritism. There are circumstances in which this is possible, if your constitution allows it, but for simplicity we usually recommend that the conflicted person leave the room when the decision is actually being considered and made. Their departure (and return) can thus be recorded in the minutes and provide 'evidence' to others that they were not involved in influencing the decision.

3. Any financial payments (or transfers of goods with financial value) should be at market rate or to the advantage of the organisation (rather than to the advantage of the conflicted person). This means if the organisation is selling something to a decision-maker, the price should be market rate or higher. If the organisation was buying something from (including paying a fee or wage for the time or skills of) a decision-maker, the payment should be at market rate or lower.

Again, Charities Services website is a wonderful source of information on how to manage Conflicts of Interest and they have great templates for policies and registers. 

Here’s hoping all your conflicts are good ones!