Associations can be complex organisations, and like anything involving us human beings they can have messy, chaotic, problematic personalities. Thus, conflicts of interest are an often-encountered fact of doing business, which, if left unmanaged can grow into serious problems.
To help busy board members, directors, governors, trustees and responsible persons understand exactly what conflicts of interest are, how to prevent and how to manage them we have taken the 26 page ACNC guide and bitesized it for your reading pleasure. However, if you wish to read the full document, you may visit: http://www.acnc.gov.au/ACNC/Publications/COIguide/COIGuide1.aspx
What is a conflict of interest?
“A conflict of interest occurs when your personal interests conflict with your responsibility to act in the best interests of your charity [association]. The term ‘personal interests’ does not need to be your own interest, but may also arise from the interests of your family, friends, or other organisations you are involved with.” (ACNC 2015, p. 3)
According to the ACNC (2015, p. 4) there are 3 types of conflicting interest:
Why is it important to prevent or manage conflicts of interest?
- Your organization might suffer from reputational damage, a vital part of any association.
- Managing conflicts of interest means that you are putting you association’s goals first and that it is meeting its obligations under law.
- Failing to do this might undermine the sustainability of the organization, undermine accountability and transparency, and negatively affect board dynamics.
“Remember: conflicts of interest are often inevitable, but it is how a charity responds to them that defines their effect on the charity. By following the steps in this guide, you can help ensure your charity is protected from the adverse effects of conflicts of interest.” (ACNC 2015, p. 6)
How to identify conflicts of interest?
Consider the three essential spheres of interest below and decide if there is an overlap between your personal interests and that of your duties or organizational purpose. (ACNC 2015, p. 7,8)
- Your organisation’s purpose.
- this is normally set out in your governing documents under objects clause
- it can also be discussed with board members or the governing body
- Your personal interests.
- current and previous paid or volunteer work
- current and previous trusteeships
- whether you are a board member of any otherorganisation
- whether you own a business or a share ina business
- membership of other organisations you hold, and
- any similar interests of your family or friends.
- Your duties as a board member.
- act with reasonable care and diligence
- act in good faith in the best interests of the charity and for its purposes
- not misuse their position as a responsible person
- not to misuse information they gain as aresponsible person
- disclose any actual or perceived conflict of interest
- ensure that financial affairs are managed responsibly, and
- not allow a charity to operate while insolvent.
ACNA (2015, p. 14)
How do we prevent or manage conflicts of interest?
The most important facet of preventing or managing conflicts of interest is to have policies in place to help facilitate their mediation. The policy should be focused on honesty and promoting a culture of disclosure of possible conflicts within the organisation.
The most effective way of preventing conflicts of interest is to keep a “register of interests”, which may include:
- name of the board member
- the date of their appointment
- record of interests, such as:
- current and previous paid work
- current and former trusteeships
- current and former directorships
- current and former membership of other organisations, or
- relevant interests of family or friends (including financial, non‑financial personal interests)
- relationship of interests (if any) to the organisation’s activities or proposed activities
- date of disclosure, and
- steps taken to prevent or manage the conflict, if
(ACNC 2015, p. 16)
This helps the organization clearly identify any potential problems that might become issues in the future and create steps to prevent them before they manifest. A good summary from the ACNC (2016, p. 17) guide for preventing potential conflicts is:
After recording, the conflict of interest must be managed:
Managing a conflict of interest should be performed in four steps.
(ACNC 2015, p. 18)
This graphic illustrates just how important it is to foster a culture of disclosure within your organization. It highlights how without self-identifying conflicts it would be difficult to manage them.
Stage three is perhaps the most complicated of these and involves board members determining an appropriate remedial action.
The ACNC (2015, p. 19) suggests that there are three possible actions that might be advised by board members in stage three to help decide how the conflicted person should react. “For each conflict of interest, you should consider whether the board member who has a conflict of interest should, in relation to the matter in which they have a conflict:”
(ACNC 2015, p. 19)
Conflicts of interest can be difficult or messy situations, but if handled properly with the right prevention techniques and management procedures, they can be controlled and contained. They require an understanding of what a conflict of interest is, a healthy internal culture of disclosure, and clear processes in place to manage them. An organization that does this creates a more transparent, positive and sustainable association.
For the full ACNC guide, which includes a template of the register of interests, you may visit: http://www.acnc.gov.au/ACNC/Publications/COIguide/COIGuide1.aspx
ACNC 2015, Managing Conflicts of Interest, viewed 2 March 2018, <http://www.acnc.gov.au/ACNC/Publications/COIguide/COIGuide1.aspx>.