Conflict of interest
Our relationships – with our family, friends, community and organisations – create obligations or responsibilities to others. We call these ‘interests’.
You may have an interest in something:
- for yourself
- on behalf of a relative or friend
- on behalf of an organisation that you’re involved in.
Your interest may influence or could be seen to influence your thinking or behaviour about that thing.
A conflict of interest is a situation where:
- a person has multiple interests
- looking after one interest might go against another.
A conflict of interest is not a bad thing – they happen all the time – but it’s how you manage it that’s important.
Good governance is about proper decision making, as well as the appearance of proper decision making. Corporations must consider how a situation or decision may be perceived by members and other stakeholders. Transparency is essential!
Responsibility
Every director has a legal duty to at all times put the interests of their corporation first. This can be challenging when the director has (or might have) interests that are different to what’s best for the corporation.
Individual directors are responsible for identifying and declaring conflicts of interest. In fact, it is their legal duty to declare their conflicting interests to the other directors. Even if they believe their decision making won’t be influenced, they must still declare it.
The board as a whole is responsible for deciding what to do about conflicts of interest.
Types of conflicts of interest
Actual
An actual conflict of interest happens when your different interests influence your decisions for your corporation.
Examples
- You are a director for a corporation that is hiring staff and one of the applicants is your relative.
- Your board is considering whether to sponsor a local sports club where your child plays.
- Your corporation provides housing services and your sister is a tenant. The board is deciding what to do about overdue rental payments from tenants.
- You are a director of a corporation and you are also in a personal relationship with the CEO or another senior manager.
- You are a director on 2 different corporations that are both tendering for the same contract.
Potential
A potential conflict is when you have different interests that don’t conflict right now but could in the future if certain things happen.
Examples
- You are a director of one corporation and an employee at another corporation. There might be a day when the 2 different organisations apply for the same grant.
- You are a director of a corporation and you own some land. There might be a day when your corporation is looking to buy land.
- You are a director of a corporation that provides tourism and hospitality services. Your child is studying to become a chef. When your child graduates they may come to your corporation looking for work.
- Your corporation provides vouchers for the local grocery store to disadvantaged people in the community. Your family lives in the community.
Perceived
A perceived conflict of interest happens when other people might think that your decisions for the corporation have been influenced by another interest. They think this even though it might not be true.
Example
- A supplier that wants to do business with your corporation takes you to dinner or gives you tickets to a concert.
- You own shares in a mining company that is looking to invest in community projects where your corporation operates.
Identifying conflicts of interest
To identify a conflict of interest, you need to understand:
- your corporation’s purpose
- your personal interests
- your duties as a director.
You should also understand situations where conflicts of interest may happen.
Personal interests
Personal interests might include:
- current and previous paid or volunteer work
- current and previous trusteeships
- whether you are a board member of any other organisation
- whether you own a business or a share in a business
- your membership of other organisations
- any similar interests of your family or friends.
Your interests can also change with time.
Where a conflict may happen
There are a number of ways a conflict of interest can happen. Knowing what they look like is an important step towards managing them.
Direct financial interest
You may receive a direct financial benefit as a result of a decision or action made by your corporation. A direct financial benefit means money changes hands.
Example
Nate is a director of XYZ Indigenous Corporation. Nate also owns a mechanic business. The corporation pays Nate’s company to fix its cars.
Indirect financial interest
You do not need to be the person directly benefitting from a corporation decision for there to be a conflict of interest.
Your family or close friend, or another organisation in which you are involved, may stand to benefit financially as a result of a decision made by your corporation.
This is known as an indirect financial benefit.
Example
XYZ Corporation pays ABC Consultancy to write a report about its programs. ABC Consultancy is owned by the mother of Director Ailsa. Ailsa’s mother gets a direct benefit from the corporation paying her company.
Non-financial or personal conflicts
Not all conflicts of interest are about money.
Your personal or religious opinions, values or beliefs may be in conflict with a proposed action or decision of your board.
You might want to do a favour for a friend or family member that will give them a non financial benefit they shouldn’t get.
Example
Some of the directors of XYZ Indigenous Corporation fly in to attend board meetings. Corporation staff pick them up in cars owned by the corporation and drive them to meetings.
Director Elsie lives in community and her brother is flying in to visit. She tells the corporation staff to pick him up from the airport and drive him to her house. Elsie’s brother receives a benefit from the corporation because Elsie is his sister.
Conflict of loyalties
There can also be conflicting loyalties within the board. This can happen when directors vote according to what someone else says instead of what’s good for the corporation.
Example
There are 4 members of the same family on the board of XYZ Indigenous Corporation. They always vote the same way. Director Skye thinks that voting ‘no’ to something is best for the corporation, but her aunty tells her to vote ‘yes’.