Conflicts of Interest

Duty-of-care obligations and duty of loyalty require that directors don’t place their own interests ahead of the organisation’s. Equally, directors must not use their directorship to directly benefit themselves, their families or others with whom they are closely associated.

Every board should require its members to declare any conflicts of interest relating to their duties as board members.

The board’s expectations and actions set the moral tone for the organisation. How boards deal with conflicts of interest is a good test of this moral standing. Failure to manage board members’ conflicts of interest undermines the moral authority of many boards. While conflicts of interest are often unavoidable, it is usually the way they are handled and not the existence of a potential conflict itself that creates difficulties.

Good governance demands effective processes for acknowledging and managing conflicts of interest. Ideally, potential conflicts should be minimised when board members are appointed. Because this is not always possible, each board should have a Conflict of Interest policy describing the processes to be followed when conflicts are identified.

An example of a simple conflict of interest policy can be found in the online resources as part of the sample board charter and policies.

Good directors are sensitive to possible conflicts and declare them without prompting. Processes for dealing with conflicts of interest should be robust, transparent and capable of dealing with actual or potential conflicts without creating embarrassment or impeding the board’s work.

The sample policy is clear about how a conflict of interest should be dealt with. Note that the board must determine whether the conflict is serious and whether or not the individual can remain in the room while it’s being deliberated, or how much information they will receive about the matter under discussion.

While the law seldom requires that a Register of Interests be kept, an up-to-date register serves as an open record of the interests brought to the boardroom by various board members. This is one way for the board to demonstrate openness and transparency.

Every board should develop an appropriate policy. There is no one right answer. Using the policy as a guide, determine how your board would respond to different scenarios.