The first step to effectively managing conflicts of interest is to know how to identify them.
You must consider three essential things to decide if you have a conflict of interest:Your organisation’s charitable purpose.Your personal interests.Your duties as a board member.
Being aware of these three things, and considering how they relate to each other, is the foundation of identifying a conflict of interest.
1. Know what your charitable purpose is
It is important to have a clear understanding of what the charitable purpose of your organisation is. Your purpose is the reason your charity has been set up and what it hopes to achieve. Some people also refer to this as your charity’s mission.
While this may seem simple, it can sometimes be difficult to define exactly what a charity’s charitable purpose is, particularly if the purpose or activities of the charity have changed over time or if there is more than one purpose.
It is a good idea to look at the purposes set out in your charity’s governing documents (often called an objects clause) and the activities through which those purposes are achieved.
This information is a good starting point to working out whether an interest may conflict with the duty to act in the best interests of your charity.
Find out more about charitable purposes at acnc.gov.au/charitablepurpose
2. Be aware of your personal interests
It is important to know what your personal interests are, and the interests of any other people connected with you, and how these interests could influence you. How your interests may conflict with your charity’s interests may not be apparent to you until a particular situation arises. Your interests can also change with time.
As a general rule, you should be aware of:
- 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
- membership of other organisations you hold, and
- any similar interests of your family or friends.
This is not an exhaustive list and there may be other interests of which you should be aware.
If you think there is a chance that these interests may conflict with the interests of your charity (even at some point in the future), you should make sure these are recorded in a ‘register of interests’ as soon as you identify them.
3. Know what your duties as a board member are
All charities are required to meet a set of ACNC governance standards which set out core minimum governance standards for all registered charities.
Governance standard five requires a charity to ensure that its board members know and are subject to a set of duties outlined in the standard.
The duties are to:
- 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 a responsible 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.
It is important to understand that these duties can overlap, and a number of duties may be relevant in a particular circumstance.
Following these duties will help ensure you and your board can respond appropriately to, or even avoid, conflicts of interest.
The following duties are some duties that are most relevant to managing conflicts of interest:
Duty 2: To act honestly and fairly in the best interests of the charity and for its charitable purposes
This duty requires you to always make decisions in the best interests of the charity and to further your charity’s charitable purposes.
It can be difficult to make a decision in the best interest of your charity if that decision conflicts with your personal interests or those of your friends, family or other organisations you are involved with. A failure to manage any conflicts of interest can easily result in a breach of this duty.
Malcolm is a children’s doctor. He sits on the board of the Healthy Hospital.
At a board meeting, the board members of Healthy Hospital discuss opening a new children’s clinic in a nearby town, serviced by doctors from the Healthy Hospital.
The proposed new clinic would be based five minutes away from Malcolm’s private paediatric practice. He is concerned that, if the clinic goes ahead, he might lose patients.
In this situation, Malcolm may be at risk of breaching his duty to act in the best interests of the Healthy Hospital, due to his own interest in his paediatric practice.
Duty 3: Not to misuse your position as a responsible person
As a board member, you cannot improperly use your position to gain an advantage for yourself or someone else, or to act in a way that causes harm or detriment to the charity. For example, a board member that was in charge of recruitment would likely be in breach of this duty if they hired a friend in a circumstance where there was a more suitable candidate.
Duty 4: Not to misuse information you gain as a responsible person
As a board member, you have a responsibility to understand and keep yourself informed about the nature of your charity’s activities, processes, finances, and the subject matter of all board decisions.
Through your role, you may have access to a range of confidential information or knowledge about your charity such as:
- your charity’s financial statements
- your charity’s proposed future activities
- personal information regarding members, employees, volunteers, donors or beneficiaries
- details of existing and proposed service agreements
- details of a potential merger with another charity
- your charity’s intention to apply for a government grant or request for tender, or
- your charity’s intention to donate some of its funds to another charity.
This information is made available to you to assist you in your responsibilities as a board member of your charity. Remember that you have a duty to not misuse your position, or any information obtained through it.
Misuse of information may sometimes be unintentional. Charities often work together, and it is common for board members to sit on a number of boards at the same time. In these situations, there is a risk of information being shared between organisations that should remain confidential.
Consider treating information as confidential. Whilst information sharing is generally good for the health and competitiveness of the charity sector and can encourage innovation, board members must be mindful of their duty not to misuse information. It is important to consider whether information made available to you in your role as a board member should be treated as confidential.
Information is generally considered to be confidential if:
- it is not in the public domain, including financial or accounting details, unofficial communications, strategic or marketing plans, or the charity has agreed to keep it confidential
- disclosure of the information could be detrimental to your charity, and/or advantageous to others, or
- within your charity’s industry, the information would usually be considered confidential or worthy of protection.
Whether or not information should be treated as confidential will often depend on the situation or purpose for which that information is being disclosed. It may be that your charity’s governing document sets out what information should be treated as confidential. If you are ever in doubt about whether information can be disclosed, you should be open and transparent with the other board members, and consider what is best for your charity.
Steve is a board member of Helping the Kids, a charity whose purpose is to assist children living in poverty.
Helping the Kids is currently preparing a response to a government tender to provide services to indigenous children in rural South Australia. It has not previously undertaken work in this area.
Indigenous Children in Need (ICIN) is much smaller charity whose purpose is to assist indigenous children with learning difficulties.
Steve is also a board member of ICIN. For the last five years, ICIN has been the successful recipient of the government tender that Helping the Kids is applying for.
Steve is concerned that if Helping the Kids wins the tender, ICIN will lose the majority of its funding and may be forced to close. Steve wonders how he could help ICIN to win the tender.
In this situation, Steve’s access to the confidential information of both Helping the Kids and ICIN means he has a conflict of interest.
Duty 5: Duty to disclose any actual or perceived conflicts of interest
One of the duties of board members is to disclose actual or perceived conflicts of interest. Disclosing conflicts of interest generally means reporting them to the board. There are a number of ways you can do this, but it is a good idea to make sure that any conflicts of interest are recorded in writing, either through setting them out in writing yourself to the members of the board or through having them recorded through a register of interests.
TIP: Use a ‘register of interests’
If you aren’t sure whether something is worth disclosing, it is a good idea to be cautious and raise it with your fellow board members. This will allow for a more impartial evaluation of whether an interest represents a potential conflict and will help if ever it becomes an issue in the future. You may wish to ask that this discussion is recorded in the minutes.
There may be circumstances when you are required to disclose a conflict to the members of your charity. For example, where you are the sole board member, or where the other directors share the same conflict. There may also be times when you cannot disclose the interest to the board or the members, for example, where there is only one board member who is also the sole member of a charity. If you find yourself in this situation, or you are otherwise unsure of your obligations, please contact the ACNC so we can discuss options with you.
There is more information on this duty throughout this guide.
Find out more about your duties at acnc.gov.au/governancestandards
4. Situations where conflicts of interest may arise
It can be helpful to be aware of the different situations in which conflicts of interest may arise so that you can confidently identify them when you need to. There are a number of different situations in which conflicts can arise. It is possible for more than one situation to occur at a time.
Situation 1: Direct financial interest
You may receive a direct financial benefit as a result of a decision or action by the board of your charity.
An example may include the payment of fees to you by the charity in exchange for a service you provide to the charity.
Remember Me is a charity whose purpose is to fund research on Alzheimer’s Disease.
Remember Me’s accountant has recently retired and the board is looking for a new accounting firm.
Michael is a board member of Remember Me. He is also a partner at accounting firm Accounts-R-Us. Remember Me is considering a number of potential firms, including Accounts-R-Us.
If Accounts-R-Us is appointed, Michael stands to benefit financially from the extra work, which means he has direct financial interest in this decision. This is a conflict of interest.
Situation 2: Indirect financial 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 board.
South School is a small private girls school. Last year the school board decided to open a canteen at the school’s campus.
Jenny is a director of South School. She told the board that she had heard of a cheap wholesaler, Food4Less, which could stock the canteen with healthy, low-price food.
Jenny’s sister owns a share in the Food4Less business. As a result, Jenny has an indirect financial interest in South School’s contract with Food4Less. This is a conflict of interest.
Situation 3: Non-financial or personal conflicts
Not all conflicts of interest are about money. In some cases, your personal or religious opinions, values or beliefs may be in conflict with a proposed action or decision of your board. In some situations, the conflict may arise simply because you want to do a favour for a friend. Alternately, a proposed decision of your board may result in your family or friends receiving a non-financial benefit they would otherwise not be entitled to receive.
Lito is a director of Curing Kids, a charity that raises money to assist children living with cancer.
Curing Kids recently undertook a large community fundraising event. The board is now deciding whom the money should be donated to.
The board is deciding between the existing cancer ward of Green Hospital and the children’s ward of Blue Hospital (so that they can establish a new dedicated cancer unit).
Lito lives down the road from Blue Hospital. His son, Peter, has leukemia. He currently needs to travel two hours to Green Hospital for treatment. If the board of Curing Kids donates the money to Blue Hospital, Lito will no longer need to take his son to Green Hospital for treatment.
In this situation, Lito has a personal, non-financial conflict in this decision. This is a conflict of interest.
Situation 4: Conflict of loyalties
Many people who volunteer on the boards of charities are members of more than one charity’s board at a time, often in the same field or industry. If this applies to you, you will need to be able to identify situations where being involved in a decision on one board may impact upon another organisation of which you are a board member.
It is important that, in addition to disclosing the relevant conflict, you are careful to always act in the best interests of the organisation when making a decision for that organisation. When you make any disclosure, be careful that you do not provide any confidential information.
Mental Health Advocates (MHA) is a charity whose purpose is to improve the quality of mental health services in Western Australia.
MHA is considering funding 10 practitioner positions at hospitals in their mental health wards. One of the candidates for the subsidy is the Central Children’s Hospital (CC Hospital). Nelly, a board member of MHA, is also a board member at CC Hospital.
In this scenario, Nelly has a conflict of loyalties between her duty to MHA (to award the subsidy to the neediest hospital), and her duty to the CC Hospital (to improve that hospital’s services.) While the purposes of the two organisations are similar, it may not necessarily be the case that the CC Hospital is the neediest of all the candidates. This is a conflict of interest.