Conflicts of Interest

Definition of conflicts of interest

A conflict of interest is any situation in which the personal interests of committee members seem to conflict with those of the organisation which they govern. This personal interest can be direct or indirect, and it can include the interests of parties connected to the committee member (see definition of connected person below). A direct interest would arise in the following example:

ABC charity wants to contract for catering services and one of the members of the governing body owns a catering company. This member gets the contract. This is a direct interest as the benefit to the committee member is a direct financial benefit.

An indirect interest in the above example would be if the member of the governing body did not own the company but had shares in it and stood to benefit indirectly from any profit made.

It is unlikely that conflicts of interest can be completely avoided but the conflict should be managed to avoid any adverse effect on the organisation and to promote maximum accountability and transparency in the organisation’s affairs. Possible conflicts or perceived conflicts should be considered as well as actual conflicts as an organisation’s name and reputation are very important.

Under charity law a connected person includes the following:

• a child, parent, grandchild, grandparent, brother or sister of the trustee
• the spouse or civil partner of the trustee or of any person  listed above
• a person carrying on business in partnership with the trustee or with any person listed above
• an institution which is controlled by the trustee or by any person listed above
• a body corporate in which the trustee or any connected person, listed in any of the first 3 points above, has a substantial interest.

The legal background to conflicts of interest

Members of the governing body of a charity are under a legal obligation to act in the best interests of the charity. It does not matter how the committee member is appointed, while they are on the governing body they have a duty to the organisation and this must take precedence. If this is unachievable or if the conflicts are so regular that the committee member’s value to the organisation is significantly reduced, then they must resign from the post or cease the conflicting activity.

How should organisations deal with conflicts of interest?

1. Identify the conflict

The first step is to identify a conflict of interest. This can be difficult as the issues can be quite complex. Some common instances of conflicts of interest are the following:

Direct payment of committee members–  section 88 of the Charities Act (NI) 2008 permits charity trustees, and connected persons, to provide goods and services on a paid for basis to the charity but only if the charity's governing document doesn't prohibit this.  If a charity is going to allow this then it should include a clause in its governing document outlining this along with suitable checks and balances to ensure that this power is limited to prevent abuse.  The un-conflicted trustees must be satisfied that the payment is in the best interests of the charity and they must have regard to Section 4 of the Charity Commission's guidance on Paying charity trustees for services. 

Where a committee member, or a person connected to the committee member, receives payment, that committee member must declare a conflict of interest and not participate in any discussion around the payment. This should not stop the payment of legitimate out of pocket expenses to committee members to reimburse them for expenses they incur while carrying out their duties for the organisation. In addition, if a member of the committee is paid for any reason, best practice would suggest that this should be fully disclosed in the annual accounts and annual report.

Indirect benefit – as mentioned above, a conflict can occur where there is no direct benefit to the committee member, for example where the organisation employs the spouse of a committee member. In this case, particularly if both parties have joint finances, it is clear that there may be a benefit to the committee member.

Potential employment opportunities – a common issue that arises in the voluntary and community sector is when a committee member, or a person connected to the committee member, becomes interested in applying for a job within the organisation. In this case the person must declare an interest immediately; they should not take part in any discussion around the position, such as setting rates of pay, holidays, job description, etc., otherwise the organisation may leave itself open to accusations of unfairness within the recruitment process as one candidate could be deemed to have an unfair advantage.

Personal interests – this is a common issue that is highlighted in the following example:

ABC charity provides grants to older people to help them pay heating bills. A committee member of the charity is struggling to pay her heating bill and applies for a grant from the charity

In this example it is clear that the organisation’s reputation could be damaged if it is felt that the committee member is benefiting from their place on the committee.

2. Manage the conflict

When a conflict of interest is identified, committee members should try to manage the conflict in the following ways:

• Declare a conflict – once identified, a conflict of interest should be declared at the earliest opportunity.
• Leave the meeting – the committee member who declares a conflict should leave the meeting and the other committee members should decide whether their absence is appropriate or necessary.
• Decide on next steps – this depends on the conflict, if the committee decides that there is no conflict, the individual committee member can go into the meeting. However, if the conflict is of such a low level that it can be tolerated, then the organisation should determine how to best protect its interests. The committee member may for example absent themselves from parts of the meeting where the conflicting activity is discussed. On the other hand, if the conflicts are so frequent or serious that the committee member’s usefulness is considerably lessened, they should resign from their post as committee member or cease the conflicting activity.
• Record the process – the process above should be clearly minuted and a register of interests should be held where committee members can record their interests.

Gifts and hospitality

Organisations should have policies to deal with personal gifts or hospitality. This protects the organisation against claims that such gifts or hospitality are intended to influence decisions within the organisation. Organisations should have a specific policy to deal with this issue and generally employees, volunteers and committee members should follow these guidelines:

• All gifts and hospitality should be declared and recorded in minutes or a register kept for this purpose. The information recorded should include its estimated value, the date on which it was received, who it was given by and the reason for the gift.
• Gifts and hospitality should never be solicited.
• Gifts and hospitality with nominal value can be accepted (the committee should set this level) but only if the gifts are not given or received with an expectation that there is an obligation owed as a result of the gift.
• If a gift is received that exceeds the nominal value, the gift should be returned to the sender, the market price should be paid or the gift should be donated to the organisation directly or to another charitable organisation.
• Gifts and hospitality intended to influence organisational decision making should NEVER be accepted.

Sample conflict of interest policy

Committee members should all be aware of conflicts of interest, what they could mean for the organisation and how conflicts of interest should be managed to protect the organisation. To ensure consistency, organisations should have a conflict of interest policy which should include a code of conduct for committee members, a register of interests, and a written procedure for identifying conflicts, for withdrawing from discussions if a conflict arises and for recording this process.

Sample:

[Organisation] CONFLICT OF INTEREST POLICY

This policy applies to all [The board of trustees] [Executive] [Management] [Committee] [Board] members.

Why we have a policy

The [board of trustees has] [Executive] [Management] [Committee members have] [Board members have] ultimate responsibility for all actions carried out by staff and committees throughout [Organisation’s] activities.  [The board of trustees has] [Executive] [Management] [Committee members have] [Board members have] a legal obligation to act in the best interests of [Organisation] and in accordance with [Organisation’s] governing document.

Conflicts of interest may arise where an individual’s personal or family interests and/or loyalties to some other individual or group conflicts with those of [Organisation]. Such conflicts may create problems. They can:

• inhibit free discussion
• result in decisions or actions that are not in the interests of [Organisation]
• risk the impression that [Organisation] has acted improperly.

The purpose of this policy is to protect both [Organisation] and its [Trustees][Executive] [Management] [Committee members] [Board members] from any appearance of impropriety.

The declaration of interests

Accordingly, we are asking [Trustees] [Executive] [Management] [Committee members] [Board members] to declare their interests, and any gifts or hospitality received in connection with their role in [Organisation].  They have a personal responsibility to declare conflicts of interest in order to fulfil their legal duty to act only in the best interests of the charity. 

A declaration of interests form is provided for this purpose, listing the types of interest you should declare.

To be effective, the declaration of interests needs to be updated at least annually and also when any changes occur. If you are not sure what to declare, or whether/when your declaration needs to be updated, please err on the side of caution.

If you would like to discuss this issue, please contact the [company] secretary or the chairperson for confidential guidance. Interests will be recorded on [Organisation]’s register of interests, which will be maintained by the [company] secretary. The register will be accessible by [Trustees] [Executive] [Management] [Committee members] [Board members] and the [company] secretary.

Recording decisions

Decisions taken where an [a Trustee] [Executive] [Management] [Committee member] [Board member] has an interest:

In the event of the [Executive] [Management] [Committee] [Board] having to decide upon a question in which an [a Trustee] [Executive] [Management] [Committee member] [Board member] has an interest, all decisions will be made by vote, with a simple majority required. A quorum must be present for the discussion and decision. Interested parties will not be counted when deciding whether the meeting is quorate. Interested [Trustees] [Executive] [Management] [Committee member] [Board member] may not vote on matters affecting their own interests.

All decisions under a conflict of interest will be recorded and reported in the minutes of the meeting.

The report will record:

• the nature and extent of the conflict
• an outline of the discussion
• the actions taken to manage the conflict.

Independent external moderation will be used where conflicts cannot be resolved through the usual procedures.

Data Protection

The information provided will be processed in accordance with data protection principles as set out in the Data Protection Act 1998. Data will be processed only to ensure that [Trustees] [Executive] [Management] [Committee] [Board] [members] act in the best interests of [Organisation]. The information provided will not be used for any other purpose.

What to do if you face a conflict of interest

All conflicts of interest, whether actual or potential, should be declared promptly at the earliest possible opportunity:

• Any [Trustee][Executive] [Management] [Committee member] [Board member] who has a financial interest in a matter under discussion should declare the nature of their interest and withdraw from the room, unless they have dispensation to speak.
• If an [a Trustee][Executive] [Management] [Committee member] [Board member] has any interest in the matter under discussion, which creates a real danger of bias, that is, the interest affects the organisation which they represent, or a member of their household, more than the generality affected by the decision, they should declare the nature of the interest and withdraw from the room, unless they have dispensation to speak.
• If an [a Trustee] [Executive] [Management] [Committee member] [Board member] has any other interest which does not create a real danger of bias, but which might reasonably cause others to think it could influence their decision, they should declare the nature of the interest, but may remain in the room, participate in the discussion, and vote if they wish.
• If an [a Trustee]  [Executive] [Management] [Committee member] [Board member] is in any doubt about the application of these rules, they should consult with the chairperson.
• If you fail to declare an interest that is known to the [company secretary or the] chairperson, the chairperson will declare that interest. It is recommended that [Trustees'] [Executive] [Management] [Committee members'] [Board members'] interests are listed in a register, an example of which is given below:

Sample Register of Interests

Template declaration of interests

To the best of my knowledge the above information is correct and complete.  I undertake to advise the [company] secretary of [Organisation] if any of the above information should change or if I become interested in any way that creates a potential conflict of interest with my position as a [Trustee][ [Committee member] [Board member] [employee] of [Organisation].  I agree to review and update this declaration annually.  I give my consent for this information to be used for the purposes described in the charity’s conflicts of interest policy and for no other purpose.

Signed _______________________________([Trustee][ [Committee member] [Board member])    Date _________________

The sample conflict of interest policy and templates are adapted from the Institute of Chartered Secretaries & Administrators

ICSA Guidance Note 050707.9: Model Conflict of Interest Policy (2005) www.icsa.org.uk.

For further information, please contact:

NICVA Governance and Charity Advice Service

Tel: 028 9087 7777
Email: [email protected]

NICVA’s governance and charity advice staff can assist with redrafting memorandum and articles of association into the new form articles to include the latest provisions of the Companies Act 2006 as well as offering training on The Duties of the Directors of a Charitable Company.

Companies House
t: 03031234 500
w: www.companieshouse.gov.uk

Institute of Chartered Secretaries and Administrators
Useful guidance notes for companies including the use of electronic communications.
www.icsa.org.uk

The Code of Good Governance
Online governance resources mapped to the principles of the Code of Good Governance.
www.diycommitteeguide.org

Charity Commission for Northern Ireland
t: 028 3832 0220
e: [email protected]
e: www.charitycommissionni.org.uk

Charity Commission for England and Wales conflict of interest guidance

Full list of CCNI guidance