Identifying and managing conflicts of interest
It is common for potential conflicts of interest to arise in associations and clubs because people with a common interest are brought together and they are often involved in more than one community group or serve on a committee that provides social, sporting or recreational activities for their family and friends.
It is not possible to prevent all conflicts of interest occurring so it is essential that an association has processes in place to manage them.
What is a conflict of interest?
A conflict of interest may arise when a member of an association has private or personal interests outside of the association that may affect (or be perceived to affect) their ability to act in the best interests of the association when they are carrying out their duties.
For example a conflict of interest may arise where:
- a committee member has a financial interest relating to a contract or proposed contract being considered by the management committee;
- an applicant for employment is a relative of a committee member or senior staff; or
- a person serves on the committees of two associations that compete for the same tenders or grants.
How can you manage a conflict of interest?
Having a conflict of interest does not mean that a person has acted improperly, or is likely to do so. While a failure to identify and manage a conflict of interest may not necessarily amount to a breach of the law, it could cause substantial damage to the reputation of the association and the individuals involved and create conflict among members.
To properly manage conflict of interest situations, it is recommended that every association:
- Develop, publish and promote a policy for the identification and management of conflicts of interest. This should include guidance as to the types of conflict scenarios that might arise in the association and what an individual should do if they think they may be at risk of having a conflict.
- Ensure that individuals who serve on its committee/board or hold a key role in the association’s management (for example a Chief Executive Officer or Manager) understand their obligations and responsibilities and receive training on how to recognise and respond to conflict of interest situations.
- Include the identification of potential conflicts of interest as an action item at each committee meeting (even if they rarely arise), and document any discussions and decisions in relation to conflicts of interest in the minutes of meetings.
Material personal interests
The Associations Incorporation Act 2015 (the Act) includes provisions that require a committee member with a material personal interest in a matter to disclose the nature and extent of the interest to the committee and the next general meeting of the association. A committee member who has disclosed a material personal interest must not be present when the matter is considered by the committee or a vote is taken on that matter.
It is important to note that an interest that the committee member has in common with all, or a substantial proportion, of members of the association does not require any disclosure or management under the Act.
Identifying material personal interests
A committee member has a material personal interest in a matter when that member, or a reasonable person with a full knowledge of the circumstances, would consider that there is a risk that the personal interest could compromise the ability of the person to make an impartial decision.
It is important to understand that not all personal interests are ‘material’. So if you are unsure about an interest you may have in a matter to be considered ask yourself would a reasonable person with a full knowledge of the circumstances consider that my interest could impact on my ability to make an impartial decision? If you have any doubt, discuss the facts with the rest of the committee so that they can determine whether the interest is material.
What can we do if the inability of a committee member to participate in a decision means that we do not have a quorum?
Several options are available for dealing with this situation:
- Consider whether the committee is required to make the decision, it may be possible for the matter to be referred to a sub-committee or to a member, independent advisor or employee.
- It may be possible to adjourn the meeting and reconvene at a later date when additional committee members can attend to make up a quorum.
- Section 43(3) of the Act permits any member of the committee (including a member with a material personal interest) to call a general meeting of members to pass a resolution dealing with the matter.
Disclosing material personal interests at general meetings
The Act also requires a management committee member with a material personal interest in a matter that has been considered at a committee meeting to declare their interest to the members at the next general meeting held by the association.
There are no restrictions on the format that this declaration must take. Depending on the number of interests that will need to be disclosed to the members, it could be done verbally, or by submitting a written record of the conflicts that arose over the period since the last general meeting took place. Regardless of the method, the identity of the member along with the nature and extent of their interest must be disclosed and recorded in the minutes.
The committee may also wish to confirm to the meeting that the member with the interest did not participate in the deliberations or vote on the particular matter.