The media coverage, today, of the difficulties faced by the director of an SOE when seeking to discharge his duties as a director while juggling the demands of a conflict-of-interest management plan that was described as ‘substantial’ – highlights a difficulty being faced by a range of entities in the private as well as the public sector. These issues are also very real for not-for-profits.
According to the media coverage, the constraints required by the conflict-of-interest management plan in order to address the director’s numerous business interests ultimately resulted in him being excluded from the consideration of 15 agenda items over 6 board meetings, during an 8-month period. Ultimately, the demands of a new business in Australia led to the director standing down.
The media reports include a comment from the Board chair to the effect that the director’s conflicts of interest [and, no doubt, the conflict-of-interest management plan] affected the board’s capability and efficiency and that
| “importantly” directors needed to consider whether they could discharge their duties as required in accordance with the Companies Act. |
The media reports also note that the Board chair checked publicly available information on the Companies Office register and drew up an ‘interests diagram’ – presumably to help assess where the conflicts might lie, for the purposes of the Board’s agenda.
In turn, Treasury set up a conflict-of-interest management plan for the director – which included seven mitigations.
These issues aren’t new. The small size of the New Zealand market for experienced company directors, particularly those with industry-specific experience, means that conflicts can and do arise.
They are also prevalent in the not-for-profit sector, especially for sports clubs, where it is likely that most, if not all, of those who are willing to make available the time and effort to be committee members will have a deep-seated interest in the sport and may have a direct or indirect participatory role as well. I find that most people involved in sports governance have a sound, common sense, feel for conflicts of interest – in terms of recognizing when they exist. But the more challenging aspect is in seeking to manage those conflicts – whether on a routine (day-to-day) basis or for more specific instances.
Equally, it is important to understand that the black letter elements (whether in the legislation or in a governance document) may only take us so far – and the development of sound policies and good governance practices (sometimes called good hygiene) must fill the gaps.
For not-for-profits, the emphasis of the Incorporated Societies Act 2022 on transactions and on financial benefits has created some blurriness. This only covers part of the broad spectrum of matters where a club officer may have a personal interest. Consequently, it is necessary to apply the elements of good corporate governance practice to flesh out the manner in which club officers address conflicts of interest.
Already, in recognition of the need for additional guidance, a handful of prominent organisations have included, in their constitutions, expanded definitions that are designed to capture all of the organisation’s normal activities or exercise of powers – and make it clear that an ‘interest’ extends to include a range of circumstances where there may be non-financial benefits.
There is also useful commentary available as a means of guidance, including which provides two practical benchmarks, namely:
- the test for conflicts of interest is an objective one – whether a reasonable observer might see the existence of a conflict; and
- the potential for conflict of interest is equally important to recognise – applying a threshold test question that asks whether the circumstances make it likely that a [board or committee] member’s judgement will be influenced, not [necessarily] that it has been (or will be).
Useful guidance is also provided by a number of public sector publications. These include examples of conflicts of interest management plans, and the assistance they provide in a public sector context, is translatable into the private and not-for-profit sectors.
Whilst there might be a cost/benefit question at the front end, about the need to spend the time and effort needed to appoint (say) a person with industry-specific expertise when a suitable mitigation strategy for a conflict of interest management plan may mean that they cannot contribute meaningfully in their specialist area, the tools are available to understand and manage the risk of conflicts.