Conflicts of interest are regularly in the news. Just last week, Lady Butler-Sloss stepped down from leading the independent inquiry into the way public bodies handled child sex abuse claims after just seven days. As a former judge, with previous experience of dealing with abuse cases, Lady Butler-Sloss was the perfect person to lead the inquiry. However, when concerns were raised over family ties, Lady Butler-Sloss said she was “not the right person for the job”. Does this mean Lady Butler-Sloss would have done something untoward to protect her family? Absolutely not. It means that she was sensitive to the perception that this might happen, and with a lifetime of working to the highest standards as a judge, Lady Butler-Sloss had the wisdom and integrity to put the needs of the work first.
Conflicts of interest don’t have to result in actual wrongdoing to damage an organisation. The perception of conflicts of interest can be just as harmful if not handled in the right way. A well-governed organisation will have a register of interests of all board members, and this will be updated at least annually. Board members should also read all meeting agendas with a view to identifying if any potential conflicts of interest exist, and declare these at the start of the meeting. Board members should excuse themselves from the meeting for any discussion of an agenda item in which they have an interest.
Board members should also be aware of what constitutes a conflict of interest, both in the boardroom, and in the organisation itself. As leaders, the board must instil a culture where conflicts of interest are actively discouraged, and, where unavoidable, managed properly.
Conflicts of interest may include:
- Sitting on the board of another organisation which is bidding for similar work
- A manager sitting on a recruitment panel which is considering a range of candidates including a friend / relative of theirs
- Awarding a large contract to a firm which employs a friend / relative of the purchasing decision-maker
- A manager heading up an investigation into complaints made against a person who has previously made complaints against that manager, or someone investigating complaints against themselves
- An employee who engages in evening work for a competitor
- Dating someone who reports to you
- Holding shares in a company which might be affected by decisions made by a board on which you are sitting
- Using company resources to further a group to which you belong
This is in no way an exhaustive list, but hopefully it will highlight some areas where conflicts arise. Remember that the 2006 Companies Act places a duty to avoid conflicts of interest on all directors. Failing to do so can destroy your reputation, and that of the company you represent.