Managing a conflict of interest
Board
It’s best to have processes in place before you need them. A board should have a conflict of interest policy that says:
- when a director should disclose their personal and financial interests
- how a director should disclose them
- how they should deal with gifts made to them in the course of their board role
- under what circumstances relatives or friends of board members can be hired or considered for contracts
- penalties for breaching the policy.
You can use our template as a starting point or create your own.
Many boards keep a ‘register of interests’ where directors state their personal interests even when there isn’t a conflict. The register can be updated as things change. It’s also a good idea for the whole board to review it at least once a year.
You can use our template as a starting point or create your own.
When there is a conflict
After a director tells the board about a conflict of interest, the board must decide:
- how much of a problem the conflict is
- what needs to happen next.
The board could decide that:
- knowing is enough and the director can still be part of discussions and decisions
- the director can’t be part of discussions or decisions about that particular matter
- the director should resign.
The board cannot remove a director who doesn’t want to resign due to a conflict of interest. In this case, the director could only be removed by the members. Learn more about removing a director.
The board must then tell the director what it has decided.
Directors
Directors are required to tell the other directors about a conflict of interest as soon as possible. This should be at a directors’ meeting.
You must tell the other directors:
- what your personal interest is
- how your interest might affect the corporation.
This must be recorded in the minutes of the meeting.
Removing yourself from discussions
If the board decides that you can’t be part of discussions or decisions about the matter:
- Ask not to be given any board or internal papers that discuss the matter.
- Avoid any informal discussions that might influence fellow board members on the matter.
- When the matter is raised during a meeting, declare your interest and leave the room. Don't wait to be asked. Ask to be called back when the item has been dealt with. Ensure the minute-taker notes why and when you left and when you rejoined the meeting.
Example
XYZ Indigenous Corporation needs to hire a new CEO. All the directors are involved in the recruitment. When the applications come in, Director Steve realises that he worked with one of the applicants a long time ago.
He immediately tells the board:
- that he knows the applicant
- what their working relationship was like
- that he hasn’t spoken to her in 20 years
- what he thinks the effect will be on the recruitment.
The board decides that:
- the conflict of interest is minor
- Steve can still be part of the recruitment process.
The board makes sure the decision is documented in the minutes of the meeting.
Example
Director Margaret has declared on the register of interests that her husband owns a handyman business. The board of XYZ Indigenous Corporation needs to decide whether the corporation will hire employees or a company to look after its properties.
Margaret reminds the board of her personal interest when the agenda is sent out. The board decides that Margaret cannot be part of the discussion or decision.
Margaret leaves the room before the board begins to discuss the matter. The board decides that the corporation will hire a company to manage it all.
Margaret is called back into the meeting. The person taking the minutes records the reason why Margaret left, when she left and when she returned.
The corporation calls for quotes from all maintenance businesses in the area. Margaret is not allowed to look at any of the quotes or recommendations made by corporation staff.
Margaret leaves the meeting when the board is discussing the quotes and deciding which company to hire.
The person taking the minutes records the reason why Margaret left, when she left and when she returned.
Note: giving a contract to Margaret’s husband’s company may be a related party financial benefit, which requires member approval. Learn more about related party financial benefits.