Charities Services | Conflict of interest/Pānga Rongorua

Conflict of interest/Pānga Rongorua

A conflict of interest is any situation where a person’s personal interest or loyalties could affect their ability to make a decision in the best interest of the charity. A conflict of interest may be actual, potential or perceived and may be financial or non-financial.

It is common for conflicts of interest to occur in charities of all types and sizes, particularly where people are related by blood, marriage, or domestic partnership. Conflicts of interest do not have to be a serious problem. However, if they’re not well managed, they could lead to decisions which are not in the best interests of the charity, create disputes, or damage a charity’s reputation. Even a perceived conflict of interest can damage a charity’s reputation.

Anyone can have a conflict of interest, and everyone should identify and manage them. Key decision makers, particularly officers of registered charities, should be especially mindful of their conflicts. Officers have a legal duty to act in the best interests of their charity. They are the trustees, members of the board or governing body, or all the people in a position to exercise significant influence over management or administration. Trustees and directors of companies in particular have a higher level of legal responsibility and personal liability, which makes it even more important to effectively manage conflicts of interest.

Identifying potential conflicts of interest can prevent larger issues down the line. Conflicts of interest are a common cause of disputes and governance issues for charities. Being clear about any real, perceived or potential conflicts from the outset is good practice and is a vital part of effective governance.

We have developed a Guide [PDF, 116 KB] to using a conflict of interest register which can help you keep a clear record of any potential or real conflicts of interest for boards, employees or volunteers.

We also have a template [PDF, 36 KB] Conflict of Interest Register which you can download and adapt for your own charity.

When do conflicts of interest arise?

A conflict of interest can arise when:

a person involved with the charity could benefit (financially or otherwise) from the charity. This benefit could be directly to the individual, or indirectly through someone they are connected to; or
a person’s duty to the charity competes with a duty or loyalty they have to another organisation or person.

This includes any situation where it could be perceived that someone’s personal interest or loyalties could affect their decision making.

Conflicts of interest commonly arise in situations where:

the governing groups’ decision could lead to employment for a decision maker or a member of their family; or
a person working or volunteering for the charity stands to gain financially from business dealings, programmes or services provided to the charity; or
information provided to the governing group in confidence might give an advantage to a decision maker's business.

How do we manage conflicts of interest?

There are a few steps you can take to make sure conflicts of interest don’t affect the decision making:

Develop an interest register.
Declare any interests at the beginning of each meeting.
Ensure the person with the conflict does not participate in the discussion or decision making process.
Record details of the discussions and decisions made in the minutes and a conflict register.
Significant transactions with a conflict of interest should be reported in the end of year financial statements as a related party transaction. This is a requirement of the reporting standards for registered charities.

When a conflict of interest is serious, it may be best to resolve the conflict by:

not pursuing the course of action; or
proceeding in a different way so that the conflict of interest does not arise; or
appointing further independent decision makers (if this is applicable); or
not appointing a particular person or requesting the person resign from the position.

Check to see if your charity has a Conflict of interest clause in its rules (governing document, deed or constitution) and/or policies. It is good practice to have a conflict of interest clause in the rules and a conflict of interest policy, as they provide guidance about how to identity and disclose conflicts of interest. You can use the Example conflict of interest policy to help your charity develop a policy.

Examples of conflict of interest

Family member interests

Family and whānau member interests are any interests that a decision maker’ immediate family, or their spouse/partner may have in the charity or the work that the charity does. These interests may change over time, which is why it is important to continually review and update your conflict of interest register.

For example:

Ahmed is a member of the governing body of a charity that administers scholarships. His nephew puts his name forward for the scholarship. Ahmed must disclose this as a conflict of interest and the charity will need to decide what action to take.

Best practice is that Ahmed does not take part in the scholarship decision-making process this round.

Contract/employment interests

A decision maker may have a contract to provide a service(s) to the charity (such as an accountant or solicitor who provides professional services to the charity). In this case it would need to be recorded as a related party transaction.

If your charity provides goods or services, people working with the charity should think about their employment outside of it. If their employment is in a similar field, they should consider how this could impact their work with the charity or its charitable purpose and declare it as a potential conflict of interest.

Example 1:

Aroha is a doctor who has her own local practice and also sits on the governing body of her local Primary Health Organisation (PHO), a registered charity. At a meeting, the governing body of the PHO discuss opening a new private practice in the town. The town population is small, and Aroha is concerned that she may lose patients if the new practice opens.

In this example Aroha may be unable to act in the best interest of the charity due to her own professional interest. If Aroha has already registered her interest, being that her work is in a similar field to the charity, then there should be steps in place to determine what to do next. In this case best practice would be that Aroha leave the room and excuse herself from the decision-making process.

Example 2:

Nikau is the general manager of a small charity set up to help kids with reading. Nikau is also the owner of a children’s bookstore, which donates some books to the charity and gives discounted rates on other books.

Payments and donations between the charity and the bookstore will create a conflict of interest as Nikau has an interest in both.

Nikau should make sure the board of the charity are aware that he owns the book store, and should not be involved in any decisions to purchase books from his store. The charity will also need to record the transactions and donations between the charity and book store as a related party transaction in their end of year financial reporting.

Other interests

These might include:

person's involvement with other charities or not-for-profit groups that are relevant to their position in the charity
if a person has someone in their life who might have influence over them and who is linked to the charity in a significant way.

Example 1:

Sarah is on the governing body of the Parent Teacher Association of her child’s school. She also is on the governing body of a charity, Swim for Life, that provides swimming lessons to refugee women. Swim for Life uses the school’s pool to provide this service. An opportunity has arisen for the school to rent out the pool to a local sport’s club, however, this would mean that Swim for Life would no longer be able to make use of the pool.

This is a conflict of interest for Sarah as the decision affects both charities she is involved with. The Parent Teacher Association needs to decide what steps to take, such as Sarah not taking part in the decision or removing herself from the room when the decision is being made.

Example 2:

Mika is applying for a job as administrator at his local church. His partner, Talia, is employed as the Pastor. Talia would need to register this as a conflict of interest as she holds a position of influence within the charity and this could impact on their ability to remain impartial on the decision whether to hire her

Example conflict of interest policy

The purpose of this conflict of interest policy is to ensure:

decisions made are in the best interest of the charity when contemplating entering into a transaction, contract or arrangement that might benefit the private or personal interests of the decision maker; and
the governing group and decision makers act at all times in the best interest of the charity
people do not directly or indirectly receive any profit from their position; and
any financial interest is disclosed; and
people do not use their position to obtain information to achieve financial benefit for themselves or another close family member, friend, or for another organisation. Family includes anyone related by blood, marriage or domestic partnership.

These procedures will be followed to ensure decisions are made in the best interest of the charity.

An interest register will be regularly maintained and monitored where everyone will register any perceived, current or potential interests. The interest register will include information about:
- the person affected
- the type of conflict of interest, and
- how it will be ensured that decisions are made in the charity’s best interest.
At the beginning of every governing group meeting, conflicts of interest will be declared that relate to the agenda items for discussion.
When there is a conflict of interest, the affected person will not take part in the discussion or decision making.
The minutes of meetings will record all disclosures and declarations of conflict of interest. This should include:
- the type of conflict of interest; and
- the person affected; and
- whether the conflict of interest was declared in advance (new conflicts of interest will be added to the conflict of interest register)
- a summary of the discussion, and
- how it was ensured that decisions were made in the charity’s best interest, including anyone that withdrew from the discussion and decision making.
An ongoing conflict register will record this information, and any related party transactions will be recorded in the Performance Statement at the end of the year.

Conflict of interest clause

Many charities will have a clause regarding conflict of interest in their governing document. This will often include what is considered a conflict of interest and how a conflict of interest should be managed.

We consider best practice is that your rules state:

That the officer with the conflict can’t vote on that particular decision
The officer will exclude themselves from that discussion in a meeting
That the officer doesn’t get counted for a quorum.

Example clauses

“A conflict of interest exists for an officer if the officer’s interests or duty in a particular matter conflicts, or might conflict, with his or her duty to the charitable entity.”

“When a conflict of interest exists for an officer, that officer must declare the nature of the conflict or the potential conflict. The officer must not take part in deliberations or proceedings including decision-making in relation to the conflict of interest. The officer must not be counted in the quorum required for decision-making on the matter for which he or she has the conflict of interest.”