As a board director, you have a duty to place the public interest above your own interests.
If there is a conflict, you need to declare it so that the board can manage it.
This helps to maintain the public’s trust in public sector organisations and their staff.
Some organisations have obligations about conflicts of interest, specific to them.
For example, your organisation may have obligations arising from:
- the law or document that established your entity
- a role, expectations or obligations statement
- the policies of your portfolio department.
Types of conflict you can have as a board director
There are 2 types of conflicts you can have as a board director: interest and duty.
Conflict of interest
A conflict of interest is a conflict with your duty as a board director and your private interests.
This conflict exists if your private interests influence, or are seen to influence, your decisions or actions as a board director.
A private interest means anything that can influence you as a board director.
Private interests include direct interests, such as your own personal, family, professional or business interests.
They also include indirect interests, such as the personal, family or business interests of the individuals or groups connected to you.
Examples of private interests
Financial interests
A potential financial loss or gain for yourself or someone you know can create a conflict of interest.
This conflict exists if you or someone connected to you is financially affected by your decisions as a board director.
This could mean you, or someone you know:
- owns property used by a company bidding for government work
- holds shares in a company bidding for government work
- has a position in a company bidding for government work.
Money doesn’t need to change hands for a financial conflict to exist. It could be you or someone you know getting something from a source related to your organisation, such as:
- concessions or discounts
- gifts
- hospitality.
Case study: Director’s spouse owns shares in service provider training with the entity
Mary is on the board of an arts centre trust. Mary’s husband holds a one tenth share in a performing arts company that is seeking a place on the performance schedule of the arts centre.
Mary has an actual conflict of interest which she needs to declare to the board. The board should consider whether the interest can be managed by placing restrictions around her involvement in decision-making. Mary should consider talking to her spouse about relinquishing the interest if it is going to present an ongoing issue of conflict for the board.
Case study: Director owns property where entity operates
John is on the board of a water catchment authority, responsible for maintaining the waterways in his local area. The board is considering a plan to purchase private land adjoining the waterways to improve water run-off. John owns some of the adjoining land which he is prepared to sell.
John has an actual conflict of interest. As a board member, John has a duty to secure the most competitive price for the land, whereas as a landowner his vested interest is in maximising any potential sale price. John should declare his land-owning interest to the board. The board should consider whether excluding John from any involvement in discussion and decisions around the sale is sufficient or whether the circumstances.
Non-financial interests
Your personal feelings about another person or group, whether you like or dislike someone, can create a conflict of interest. This is because the conflict comes from using your position to help or hinder someone.
This conflict exists if your feelings about a person or group could influence, or be seen to influence, your decisions or actions as a board director.
This includes:
- family or friends
- personal contacts
- your social, recreational or cultural activities.
Your portfolio department may require you to declare certain associations. For example, if you're associated with a person or group suspected or known to be involved in unlawful activity.
Case study: Director has industry connections linked to a tender
Jack is on a hospital board, which has put out a request for tender for a new information technology (IT) system. Jack previously worked in the IT industry and maintains some contact with ex-colleagues from the industry. One of his ex-colleagues from the industry has put in for the hospital tender.
Jack has a non-financial conflict of interest. His personal relationship with his ex-colleague has the capacity to compromise his impartiality when assessing the tenders. He should declare his interest to the board and then the board should remove him from involvement in the tender process. The board’s actions should be recorded in the minutes.
Case study: Contracting and appointing
Kate is on the board of an alpine resort management board. The resort has advertised an employment vacancy and Kate along with two other directors are chosen for the selection panel. Kate’s brother-in-law Peter has applied for the position. Peter lives interstate, so their family relationship is not well known in the region.
Kate realises she has a conflict of interest as a result of the recruitment process. Her capacity to impartially select a candidate could reasonably be seen to be hampered by her family relationship with one of the applicants. Kate should formally declare and register this interest with the entity board and ask to be removed from the selection process and/or have an independent third party oversee the recruitment process.
Consensual personal relationships
Your personal relationships with people who could be affected by your role can create a conflict of interest.
This conflict exists if you have a relationship with someone who could influence or be seen to influence, your decisions or actions as a board director.
For example, a board director may have a relationship with their CEO.
This could be a conflict of interest, as the board makes decisions about the CEO’s performance.
Case study: consensual personal relationships
Peter and Quynh are in a personal relationship. Peter is a board director and Quynh is the CEO of public entity X. As a member of the board, Peter makes decisions about Quynh’s performance as the CEO. This represents a direct private interest for Peter in their role as board director because their own personal relationship with Quynh may directly influence decisions they make about Quynh’s performance as CEO.
Peter and Quynh should disclose their relationship to the board and seek guidance from a neutral party/disclosure officer on how to manage the conflict. This could include the board director resigning, ending the relationship (relinquish) or removing themselves from any matter considering the CEO’s performance.
Conflict of interest example scenarios
- A director holding shares in a company that is in some form of competition with the public entity or that will be affected in some material way by a board decision.
- A director owning property in a location where the public entity is considering construction (a public entity’s construction activity may affect property values in the locality).
- A director has a close relative who is a potential consultant, contractor or service provider for the public entity.
- A director’s organisation has provided services in the past to the public entity (a conflict in itself) and a question on the quality of those services has arisen such that some action may be contemplated against the organisation.
- When information gained through a director’s board work itself is used in commencing a business that is in competition with the board’s public entity or for making investments intended to benefit the director personally.
Conflict of duty
A conflict of duty is a conflict between your duty as a board director and your duty to another public or private organisation.
This conflict exists if you have 2 or more roles that have competing priorities.
Conflict with a public organisation
You may have a duty to another public sector organisation.
For example, you may be on the board of another public sector organisation or have a role with a government department or local council.
Case study: Director at risk of improper decision-making from unclear loyalties
Emma is on the board of a local TAFE, which is classified as a Victorian public entity. She also sits on the board of a federal government body advising on tertiary education policy. The federal government body is currently reviewing the performance of the TAFE sector in different states.
A potential conflict of duty exists in this situation. Emma’s duty to act in the best interests of the TAFE may conflict with her duty to conduct a review of the TAFE’s effectiveness on behalf of the federal government body. Emma should formally declare and register her potential conflict of duty with the board of the TAFE and the federal body. The boards involved should then consider whether they will require Emma to be removed from involvement in this particular review, or whether they view the conflict as deeper and require her to relinquish one of her board positions permanently.
Conflict with a private organisation
You may have a duty to another private organisation.
For example, you may be a director of a private company, a member of a professional organisation, or an office bearer or volunteer at a local club.
Case study: Access to privileged and confidential information
Mark is a barrister practising in commercial law. He is also a member of the board of a regional water corporation (classified as a public entity). The water corporation recently put out a request for tender for a corporate consultant. Carl, a client of Mark’s, has applied for the tender. Carl also recently approached Mark for advice, concerned his corporate consultancy business may have breached the law.
Mark has a conflict of duty between his professional duty to maintain his client’s confidentiality and his public duty as a director to act honestly and in the best interests of the public entity. At the next meeting of the board, without revealing the substance of Carl’s legal matter, Mark formally declares his interest as Carl’s barrister. The board minutes record this disclosure and the board’s decision that Mark not be involved in any way in the tender process.
Actual, potential and perceived conflicts
A conflict can be actual, potential and perceived:
Actual
There is a current conflict with your duties as a board director and your private interests or duties.
Potential
There is a potential conflict with your private interest or other duty and your duties as a board director.
Perceived
The public could believe your private interests or other duties may influence your performance as a board director.
What to ask if you have a conflict of interest
If you think you have a conflict of interest, ask yourself:
‘Would a reasonable person make the same decision in light of the same facts and circumstances?’
Your loyalty to the board
If you’re a member of an industry group or another organisation, you may experience a conflict of loyalty.
As a board director, your first loyalty is to the organisation that appointed you.
You have a duty to help it fulfil its functions.
You have this duty even if an industry group or another organisation appointed you first.
How to declare a conflict of interest
As a board director, you should declare any conflict of interest using your organisation’s register of interests.
As a board director, you must:
- declare any interests that could create a conflict of interest
- update the register if your interests change
- review and update your entries in the register each year.
What your organisation’s register should include
Your organisation’s register of interests should include:
- all employment you still have an interest in
- all paid or unpaid appointments and memberships of organisations
- investments in unlisted companies, partnerships and other forms of business, major shareholdings and beneficial interests
- accepted or declined non-token offers of gifts, benefits or hospitality made by external bodies from the past 12 months
- if you or someone you care for uses the organisation’s services
- any contractual relationships with the entity or its subsidiaries.
How to use the register in your board meetings
As a board director, at the start of a board meeting you have 2 obligations when it comes to conflicts of interest.
Obligation 1: confirm your interests
You must confirm your interests in your organisation’s register of interests are correct.
If they’re not, you must update the register as soon as you can.
Obligation 2: declare interests on the agenda
Even if you record your conflict of interest in the register, you must still declare any interest you have if it’s an item on the agenda.
The board will decide if you can take part in the agenda item and how to manage your conflict of interest.
How to manage a conflict of interest
Your board has a duty to have and enforce a process to manage board directors’ conflicts of interest.
Your board’s process must:
- ask directors to disclose all interests at meetings
- record all disclosures in the meeting’s minutes
- have the board decide if a conflict of interest will affect the board’s duties.
Your board’s process should let the board:
- ask a board director with a conflict of interest be absent from meetings while the board considers the conflict
- ban the board director from taking part in any board decisions that relate to the conflict
- notify the Minister as soon as it can after it is aware of any breach of the board’s conflict of interest process.
What happens if you declare a conflict
If you declare a conflict of interest with an agenda item, your board must decide how to manage the conflict.
You can’t take part in this decision.
The board usually deals with the conflict in one or more of these 5 ways:
Record and monitor
The board can record details of the conflict in the minutes and monitor whether further action is required.
Restrict
The board can restrict your involvement in the matter. For example, you may be:
- permitted to take part in some discussion
- not permitted to take part in any decision-making.
Remove
The board can remove you from any discussion or decision-making on the matter. This means:
- you must leave the room during the agenda item
- you must not take part in any discussion or decision making on the matter, either during the meeting or elsewhere.
Recruit
The board can appoint an independent third party with no interest in the matter to oversee some or all of the process. This person would be from outside the organisation.
Relinquish or resign
The board can recommend that you relinquish the private interest concerned. If this does not occur, the board may recommend that you resign.
Managing a conflict in a different way
Your board may decide to manage the conflict in a different way. The reasons for doing this should be recorded in the minutes.
If you breach your obligations
If you don’t declare a conflict of interest, you may be in breach of the Code of Conduct for Directors of Victorian Public Entities.
A breach of the code could result in disciplinary action or your removal from the board. If a serious breach occurs, the chair should talk with the department that oversees and supports your organisation.
They may need to notify the minister in writing.
Updated