As a board director, you are a steward of public sector resources and services. This privilege means that you need to demonstrate integrity, including in the way you manage conflicts of interest. By upholding these obligations you can inspire others to do the same and serve the best interests of the Victorian community.
You have a duty to place the public interest above your own interests. Mostly this will be fairly straightforward.
Where a conflict does arise, you need to carefully manage it to ensure you are not compromising your overriding interest as a board director.
Of course, having a conflict is not in itself a sign of wrongdoing. However, if you have an undeclared and unmanaged conflict of interest this could be seen as compromising your objectivity and your duty.
A simple rule of thumb is to be vigilant about any possible conflicts, err on the side of caution and when you identify a conflict of interest, declare it to the board. This will allow for a transparent and honest process that manages the conflict and ultimately maintains public trust in your organisation and its staff.
The following guidance helps you to understand what to do if you have a conflict of interest, how to declare it and how to participate in managing it correctly.
This guidance applies to those bound by the Code of Conduct for directors of Victorian Public Entities, specifically:
The guidance may also be useful for other members of governance committees, for instance those independent members of Audit and Risk Committees who are not otherwise bound by the Code of Conduct.
A conflict of interest is when you have a private interest or duty that could influence, or reasonably be seen to influence, your decisions, actions or obligations as a board director.
Private interests are any interests that a director may have outside their role as a board director. These can be direct interests, such as your own personal, family, professional or business interests.
They also include indirect interests, such as the personal, family or business interests of the individuals or groups connected to you.
A declaration of private interests (DOPI) discloses any private interests a director has, whether financial or not. It helps identify potential conflicts of interest. All board directors must complete a DOPI in the following circumstances:
A register of interests is a record of all board members’ private interests that have been declared in their DOPIs.
A conflict can be actual, potential or perceived:
There’s a current conflict between your duties as a board director and your private interests or duties. For example, a director owns property in a location where the public entity is considering construction.
There’s a potential conflict between your duties as a board director and your private interests or duties.
For example, you own shares in a company that is bidding for a contract out for tender by your organisation. Although you are not directly involved in the procurement process, there is the potential for a conflict of interest in the future.
The public could believe that your private interests or other duties may influence your performance as a board director. For example, if a director previously worked with a candidate for the vacant CEO role, it might seem like a conflict of interest to the public, even if they did not have any interactions with each other at the previous workplace.
If a circumstance or interest presents a conflict of interest, you should also develop a proposed conflict of interest declaration and management plan (see below).
Some organisations have additional obligations about conflicts of interest, specific to them. For example, your organisation may have additional obligations arising from:
It is your responsibility to be aware of all obligations which apply to you as a board director.
As a board director, you must declare any conflict of interest in accordance with your board’s conflict of interest policy.
Your board’s policy should include a model conflict of interest declaration and management plan form.
If you think you have a conflict of interest, ask yourself if a reasonable person would:
If you have identified that you have an actual, potential or perceived conflict of interest, you should develop a conflict of interest declaration and management plan. The plan records the details of the conflict and the management approach that has been approved by the board.
Developing the plan should also be done in consultation with the board Chair. You may need to discuss the conflict with the board chair or secretary before meeting papers are circulated, as they may need to restrict your access to certain meeting papers as part of the plan.
Remember to update your declaration of private interests and the register of interests, if this conflict relates to a change in your private interests.
Your board has a duty to have a process to manage board directors’ conflicts of interest. This could include having ‘Declaration of Interests’ as a standing item on any agenda and including a summary of the register of interests included in the meeting papers for reference.
If you declare a conflict of interest, your board must decide how to manage the conflict.
The board’s decision on how to manage the conflict must also be recorded in the minutes. You can’t take part in the decision about how to manage the conflict.
The board usually deals with the conflict in one or more of these 5 ways:
The board records details of the conflict in the meeting minutes and monitors whether further action is required.
The board restricts your involvement in the matter. For example, you may be:
The board removes you from any discussion or decision-making on the matter. This means:
The board appoints an independent third party with no interest in the matter to oversee some or all of the process. This person would be from outside the organisation.
The board recommends that you relinquish the private interest concerned. If this does not occur, the board may recommend that you resign. Failure to resign in these situations may result in the Board or department advising the Minister that your actions constitute a material (serious) conflict.
Your board may decide to manage the conflict in a different way. The reasons for doing this should be recorded in the minutes.
Your declaration of private interests should include:
Your declaration of private interests will then be used, along with other members of your boards DOPIs, to form your organisation’s register of interests.
If you don’t declare a conflict of interest, you may be in breach of the Code of Conduct for Directors of Victorian Public Entities.
A breach of the code could result in disciplinary action or your removal from the board. If a serious breach occurs, the chair should talk with the department that oversees and supports your organisation.
If there is a breach of the board’s conflict of interest policy in relation to a material (serious) conflict, the board must notify the Minister in writing as soon as practicable.
A potential financial loss or gain for yourself or someone you know can create a conflict of interest.
This conflict exists if you or someone connected to you is financially affected by your decisions as a board director.
This could mean you, or someone you know:
Money doesn’t need to change hands for a financial conflict to exist. It could be you or someone you know getting something from a source related to your organisation, such as:
Maria is on the board of an arts centre trust. Maria’s husband holds a one tenth share in a performing arts company that is seeking a place on the performance schedule of the arts centre.
Maria has an actual conflict of interest which she needs to declare to the board. The board should consider whether the interest can be managed by placing restrictions around her involvement in decision-making. Maria should consider talking to her spouse about him relinquishing his interest if it is going to present an ongoing and unmanageable issue of conflict for the board.
John is on the board of a water catchment authority, responsible for maintaining the waterways in his local area. The board is considering a plan to purchase private land adjoining the waterways to improve water run-off. John owns some of the adjoining land which he is prepared to sell.
John has an actual conflict of interest. As a board member, John has a duty to secure the most competitive price for the land, whereas as a landowner his vested interest is in maximising any potential sale price. John should declare his land-owning interest to the board. The board should consider whether excluding John from any involvement in discussion and decisions around the sale is sufficient or whether the circumstances give rise to an unmanageable conflict of interest.
Your personal feelings about another person or group, whether you like or dislike someone, can create a conflict of interest. This is because the conflict comes from using your position to help or hinder someone.
This includes:
Your portfolio department may require you to declare certain associations. For example, if you're associated with a person or group suspected or known to be involved in unlawful activity. This is often referred to as a declarable association.
A declarable association is a current or recent association with a person, group or organisation you are aware – or should reasonably suspect – of being involved in serious unlawful activity, now or in the past. Your board may have a stricter definition.
You must declare the association if a conflict of interest exists (actual, potential or perceived). Given your seniority as a board director, you should consider declaring any declarable associations, regardless of whether they present a conflict.
Mohammed is on a hospital board, which has put out a request for tender for a new information technology (IT) system. Mohammed previously worked in the IT industry and maintains some contact with ex-colleagues from the industry. One of his ex-colleagues from the industry has put in for the hospital tender.
Mohammed has a non-financial conflict of interest. His personal relationship with his ex-colleague has the capacity to compromise his impartiality when assessing the tenders. He should declare his interest to the board and then the board should remove him from involvement in the tender process. The board’s actions should be recorded in the minutes.
Priya is on the board of an alpine resort management board. The resort has advertised an employment vacancy and Priya along with two other directors are chosen for the selection panel. Priya’s brother-in-law Noah has applied for the position. Noah lives interstate, so their family relationship is not well known in the region.
Priya realises she has a conflict of interest as a result of the recruitment process. Her capacity to impartially select a candidate could reasonably be seen to be hampered by her family relationship with one of the applicants. Priya should formally declare and register this interest with the entity board and ask to be removed from the selection process and/or have an independent third party oversee the recruitment process.
Georgia has an ongoing relationship with a family member who has a history of serious offending relating to the illegal sale of drugs. She is also on a local water board.
It is unlikely that this would interfere with her ability to act in the best interests of the board. Despite this, Georgia declares this relationship, as given her seniority as a board director, she believes this is an appropriate action to take. The board determines that no further action is required to manage this, unless circumstances were to change.
Your personal relationships with people who could be affected by your role (for example, employees of the public entity) can create a conflict of interest.
This conflict exists if you have a relationship with someone who could influence or be seen to influence, your decisions or actions as a board director.
Peter and Quynh are in a personal relationship. Peter is a board director and Quynh is the CEO of a public entity. As a member of the board, Peter makes decisions about Quynh’s performance as the CEO. This represents a direct private interest for Peter in their role as board director because their own personal relationship with Quynh may directly influence decisions they make about Quynh’s performance as CEO.
Peter and Quynh should disclose their relationship to the board and seek guidance from a neutral party/disclosure officer on how to manage the conflict. This could include the board director resigning, ending the relationship (relinquish) or removing themselves from any matter considering the CEO’s performance.
You have a duty to another public sector organisation.
For example, you may be on the board of another public sector organisation or have a role with a government department or local council.
Sofia is on the board of a local TAFE, which is classified as a Victorian public entity. She also sits on the board of a federal government body advising on tertiary education policy. The federal government body is currently reviewing the performance of the TAFE sector in different states.
A potential conflict of duty exists in this situation. Sofia’s duty to act in the best interests of the TAFE may conflict with her duty to conduct a review of the TAFE’s effectiveness on behalf of the federal government body. Sofia should formally declare and register her potential conflict of duty with the board of the TAFE and the federal body. The boards involved should then consider whether they will require Sofia to be removed from involvement in this particular review, or whether they view the conflict as requiring her to relinquish one of her board positions permanently.
You have a duty to another private organisation.
For example, you may be a director of a private company, a member of a professional organisation, or an office bearer or volunteer at a local club.
George is a barrister practising in commercial law. He is also a member of the board of a regional water corporation (classified as a public entity). The water corporation recently put out a request for tender for a corporate consultant. Carl, a client of George's, has applied for the tender. Carl also recently approached George for advice, concerned his corporate consultancy business may have breached the law.
George has a conflict of duty between his professional duty to maintain his client’s confidentiality and his public duty as a director to act honestly and in the best interests of the public entity. At the next meeting of the board, without revealing the substance of Carl’s legal matter, George formally declares his interest as Carl’s barrister. The board minutes record this disclosure and the board’s decision that George not be involved in any way in the tender process.
You should speak with your board’s Chair or the Board Secretary where you have further queries about how this guidance applies on your particular board.
Resources