How best to avoid a conflict of interest

Areader ‘‘S’’ asks about an alleged conflict of interest situation on a board. She is in business and is also on a board to assist small businesses.

She asks if there is a possibility that she may benefit from a matter being discussed, should she have to stand aside and not be involved in the discussion?

Conflicts on boards arise all the time, but they don’t have to be a big issue – so long as you know how to deal with them.

In S’s case she is on the board of a national organisation set up to assist small business owners around New Zealand.

S runs a small business. At a meeting of the organisation, a proposal is tabled that will significantly benefit small businesses in her area.

Does S have a conflict of interest in this situation and is she able to participate in the discussion and vote on the matter?

First of all, it is necessary to consider what the organisation’s rules say.

Check to see how interest’’ is defined.

Often, the rules include a provision that a representative will not have a conflict where that representative’s interest is not different from the interests of other members.

If S’s organisation has a similar provision, she would not have a conflict of interest, provided her interest was no different to other

‘‘conflict of small business owners.

However, if there was no such provision in the rules, it is likely that she would have a conflict of interest sitting on a national board that was making decisions for S’s region.

That is because she could favour one region over another. It would be best if she stepped aside from the discussion on the project in her region.

It is good practice for the rules of an organisation to require representatives to disclose their interest and the extent of the interest to the board.

It is also common to prohibit any representative from participating in the discussion, or voting on, a matter in which they are ‘‘interested’’.

Depending on how the rules are drafted, a representative may be:

Able to participate in the discussion about the matter in which they are interested and able to vote.

Able to participate in the discussion about the matter, but unable to vote.

Required to leave the meeting while the matter is discussed and unable to vote.

What is best for your organisation will depend on its individual circumstances.

Get advice if you’re not sure what conflict of interest provisions are best to include in the rules of your organisation.

If S was on a local board to promote business in the one region, she would not have a conflict any different to all of the other board members (over a proposal to promote business in the region).

Each is interested in the same way because their only interest on the board is their region.

If all board members had to stand aside, the board could not conduct its business at all.

All board members would always be conflicted and that would not be a sensible outcome.

If you are uncertain if a conflict of interest has arisen, it is best to take a conservative approach and err on the side of caution.

In that situation, make sure the conflict (or possible conflict) is disclosed to the board and follow the procedure set out in the organisation’s rules.