Conflict of Interest Protocol for Statutory Bodies and Other Committees

Conflict of Interest Protocol for Statutory Bodies and Other Committees
Date of publication: May 2000

Introduction
Members of statutory bodies and other committees may have dealings with commercial firms or other organisations (including professional organisations) that could lead to a perceived or actual conflict of interest. This protocol provides a guide for members on conflicts of interest. It applies to appointments made by:

the Minister of Health to statutory bodies, for example, the Occupational Therapy Board, the Alcohol Advisory Council of New Zealand, the Health Research Council, and the Medical Council of New Zealand; and to those made by

the Director-General of Health to Ministry of Health advisory committees, for example, the Food and Nutrition Advisory Committee and the AIDS Medical and Technical Advisory Committee.

Conflicts of Interest
There are situations where conflicts of interest are particularly likely to arise, or be perceived to arise. Members of statutory bodies and other committees may become involved in matters that could potentially affect their ability to be or to be perceived as being neutral or impartial. Furthermore, members of statutory bodies and other committees appointed by the Minister of Health or the Director-General of Health are likely to hold another role within the health sector.

The Minister of Health and/or Director-General of Health need to have confidence that the potential for conflicts of interest is minimised and that systems exist to manage any situation that develops into a conflict of interest.

Duties of members of statutory bodies and other committees
Committee or body members should perform their functions in good faith, honestly and impartially, and avoid situations that might compromise their integrity or otherwise lead to conflicts of interest. Proper observation of this principle will protect them and the Minister and/or Director-General, which will enable public confidence to be maintained.

The ethical context is explained further in the State Services Commission (SSC) Board Appointment and Induction Guidelines (1999):

good faith: members of Crown boards and offices have an obligation to act at all times in good faith and in the best interests of the body to which they have been appointed;

honesty: members of Crown boards and offices have an obligation to act honestly at all times in relation to all matters concerning the body to which they have been appointed;

impartiality: members of Crown boards and offices must observe the principles of fairness and impartiality in all official dealings. No individual or Organisation with which board members or officers are involved may be given improper preferential or detrimental treatment - whether by access to goods and services, or access to information, or anything similar.

Protocol

Full disclosure of interests by candidates
1. Before their appointment, candidates must disclose whether they have any financial, professional, or personal interests (direct or indirect) that might create a conflict if they are appointed to the board or committee. As a guide the following types of interest which might create a conflict in respect of this appointment should be disclosed:

directorships or other employment
interests in business enterprises or professional practices
share ownership
beneficial interests in trusts
existing professional or personal associations with the Crown body concerned
professional associations or relationships with other organisations
a personal associations with other groups or organisations
a family relationships (including family members with shares / benefits in trusts relevant to the Organisation),

2. The disclosure should include the monetary value and/or the nature and extent of any interest, including professional organisations the candidate or member is involved in, and whether they are an office-holder in the professional Organisation.

3. This disclosure provision requires candidates to disclose a very broad range of interests, including many current interests that may provide the foundations of their involvement in the committee or body. Accordingly, it would be impractical to exclude members from proffering advice where they simply have an interest per se. However, it is important for all interests to be disclosed to allow the Director-General of Health or the Ministry on the Minister's behalf to determine the issue of materiality. Non-disclosure of material interests could reflect on the Minister of Health, the Ministry of Health, and/or the board or committee.

4. Candidates must advise the Ministry of Health immediately of any change in their interests that occurs in the course of the appointment process.

5. Systems of managing any conflict may be discussed with the candidate and agreed to before an appointment is confirmed. Cabinet takes conflict of interest seriously and requires confirmation that any potential conflict can be managed to protect the decision-making integrity of the boards concerned and public confidence in them.

Probity
6. Candidates must consider whether there is anything in their personal histories that may make their candidacy for the board inappropriate. In particular, they should divulge details of any criminal convictions or complaints upheld, or in progress, by the Health and Disability Commissioner or any other relevant professional body.

Appointed members
7. When a person is appointed, they will complete a written acknowledgement of their appointment as a member and their understanding of the terms and conditions of appointment.

Procedure

Chair's and Secretary/Registrar's responsibilities
8. It is the secretary/registrar's responsibility to update conflict of interest disclosures every twelve months, with members verbally disclosing any conflicts of interest at the commencement of each meeting as they relate to agenda item/s for that meeting. For some committees, members may be required to complete conflict of interest declaration forms before each meeting to disclose any conflicts arising at that particular meeting. The form is returned to the secretary prior to the meeting so the chair can decide on any necessary action.

9. It is the chair's responsibility to decide whether a member's interest constitutes a material (significant) direct or indirect interest, and, if so, how this conflict should be managed, for example, by the member abstaining from discussion and/or voting.

10. Whether an interest is material (significant) or not will depend on the nature and degree of the interest as it relates to the matters before the committee or body and should be dealt with on a case by case basis.

11. However, in general, a material or significant interest includes interests such as the receipt of a grant, source of funding, employment, or shareholding including with any parent or subsidiary company. A material interest does not generally include a minor financial interest that includes honoraria not exceeding $2,000 per company and travel support (but these payments must be disclosed).

12. Annex 21* of the SSC Guidelines discusses mechanisms for avoiding or managing conflicts of interest, such as confidentiality agreements, declarations of interest, abstaining from voting, and withdrawing from discussion. These methods may be used singly or in combination, depending on the nature and extent of the conflict of interest being considered.

13. When significant conflicts exist or arise, a board member should consider whether that conflict precludes them from participating in a meaningful way and it would be better to resign.

14. It is the secretary/registrar's responsibility to ensure the mechanism used to deal with any conflict of interest is recorded in the minutes, for example, the record of the meeting should clearly show xx abstained from the discussion and/or voting because of a conflict of interest.

Waiver from exclusion in exceptional circumstances
15. In exceptional circumstances, the Minister of Health or the Director General of Health may waive or modify any of the above provisions in respect of any matters where, in the Minister's opinion, the need for a member's services on the committee outweighs the potential for a conflict of interest created by the material interest involved, A "waiver" from the Minister in respect of the interest would enable the member to continue to take part in the proceedings (with certain restrictions, if necessary).

Annex 3 from the SSC Board Appointment and Induction Guidelines concerning the Duties of Board Members is attached to this document for information.

Further Information
This document is based on the State Services Commission Board Appointment and Induction Guidelines published in 1999. The Guidelines contain more information regarding conflict of interest and include Cabinet Office requirements for appointments to statutory and other bodies appointed by the Crown.

A booklet containing information collated for Chairpersons from the SSC Guidelines (and including Annex 2 Identifying and Dealing with Conflicts of Interest) is available from Corporate and Ministerial Services, Ministry of Health.

The full SSC Guidelines are also available at www.ssc.govt.nz or from Corporate and Ministerial Services, Ministry of Health.

*A booklet containing information collated for Chairpersons from the SSC Board Appointment and induction Guidelines (and including Annex 2 Identifying and Dealing with Conflicts of Interest) is available from Corporate and Ministerial Services, Ministry of Health.)

Annex 3
Duties of Board Members*
This Annex is intended to provide Ministers and departments with a brief description of the role of board and the duties of board members, to assist in terms of appointment and induction.

Typically, organisations in the wider State sector are governed by boards or board-like governing bodies. The role of the governing body is crucial to the overall performance of an Organisation.

Most of these organisations are established by or under statute. The legislation relating to a particular entity should include the functions of that entity, the relevant accountability arrangements, and the nature of the formal relationship with the Responsible Minister (including, for example, whether the Minister can direct the entity). The legislation may also set out some information on the duties of board members. The legislation relating to a public sector organisation is a fundamental point of reference for its board.

In general, the board's role includes the following key elements:

setting strategic direction and developing policy - this must be in a manner consistent with the statutory framework within which the organisation is established and the broader interests of the Crown as owner. Crown organisations are usually established to give effect to public policy objectives; financial objectives, while important, are often secondary to policy objectives;

appointing the chief executive - this includes identifying the best available candidate for the position, and negotiating an appropriate employment contract consistent with any statutory requirements and SSC chief executive remuneration guidelines;

monitoring the performance of the entity, and of its chief executive;

ensuring compliance with the law, accountability documents and relevant Crown expectations - this involves an important element of leadership, in terms of reinforcing expectations of behaviour of the chief executive and Organisation that are appropriate to a public body, and;

maintaining appropriate relationships with the Minister, parliament and the public - this includes accounting for the performance and management of the Organisation. The relationship with the Minister will vary according to the nature of the Organisation and the legislation it is established under. In many cases Minister has directive powers over an Organisation.

*This annex contains a brief description of the role of the board and the duties of board members. it is not intended to be relied upon as legal advice about the role of the board, or the duties and liabilities of board members. Board members should seek appropriate advice about any questions that arise regarding these matters

In the case of some organisations, the board may be directly involved in conducting the business of the organisation (this is particularly true of small regulatory bodies like the Commerce Commission, where members are expected to make regulatory decisions) In general, however, the Crown does not appoint executive directors.

In carrying out its functions, it is incumbent on the board to ensure that it:

has a clear understanding of its own role;

has a clear understanding of the Minister's role;

is well informed about the entity it governs;

is well informed about the relevant legislation;

arranges for appropriate induction and training of board members, which complements that provided by the Ministers and the Minister's advisers;

takes appropriate advice; and

reviews its own performance.

The Duties of Board Members
Under company law, Crown company directors have a fiduciary duty to act in good faith, and in the best interests of the company. They also have a duty of care when exercising powers or performing duties as a director*

The obligations of the members of boards of most other Crown organisations are usually not set out in statute, although in some cases legislation includes provisions on conflicts of interest.**

Whether or not an organisation's legislation explicitly refers to conflicts of interest, however, board members have an obligation to deal appropriately with any conflicts

A member of the governing body of a Crown Organisation, whether a company or not is in the position of a fiduciary, and as such is in a special relationship with the entity. As a fiduciary, a member of the governing body of a Crown entity:

must act honestly in what that member considers to be the interests of the entity.***

This means that a member's duties include:

a duty not to delegate decisions, except as permitted by law;

*The general duties owed by directors under the Companies Act 1993 include a responsibility to:

act in good faith and in the best interests of the company (s232);

exercise their powers for a proper purpose (s133);

comply with the Companies Act and the company's constitution (s134);

not agree to, or cause or allow reckless trading that involves the business of the company being carried out in a manner likely to create a substantial risk of serious less to creditors (s35);

not agree to the company incurring obligations unless there are reasonable grounds to believe that the company will be able to perform them (5136);

exercise reasonable care, diligence and skill (s137);

disclose relevant interests to the board (s140); and

not to misuse confidential information (5145).

**For example, some organisations (e.g. schools and the Fire Service Commission) are governed by the Local Authorities (Members Interests) Act 1968, while other organisations have specific legislative provisions on conflicts of interest (e.g. NZ Tourism Board Act 1991 s13). Crown companies are covered by ss139-149 of the Companies Act 1993.

***Where there appears to be any significant conflict between the interests of the organisation and the interests of the Crown, board members should seek legal advice:

a duty not to act under another's direction, except as permitted by law;

a duty to consider whether a discretion should be exercised;

a duty not to act for the member's own benefit, or for the benefit of any third person; and

a duty not to act capriciously or totally unreasonably.

must exercise the powers and discretion's conferred upon him /her in good faith in the interests of, and for the benefit of, the entity as a whole, which the fiduciary is bound to protect. This means that a member's duties include:

a duty not to misuse property held in a fiduciary capacity,

a duty not to misuse information held in confidence;

a duty not to place himself /herself in a situation where the member's duty and interest conflict;

a duty to disclose any such interests held by the member that may conflict with the member's duty, and

a duty not to promote his/her personal interest by making or pursuing a gain in circumstances in which there is a conflict, or a real or substantial possibility of a conflict, between the member's personal interests and those of the persons whom the member is bound to protect.

all members of the governing bodies of organisations have a number of duties in addition to those fiduciaries:

members have duties arising from statutory provisions such as the Public Finance Act 1989 and may have duties arising from any statutory provisions that apply to the Crown body, or to the member's office;

member must exercise reasonable skill and care in the performance of their office; and

members may have duties that arise from the terms of their appointment

Personal Liability
Legislation deals with personal liability on the part of board members of Crown bodies in a variety of ways. Company directors are open to significant personal liability (civil and criminal) for falling short of the standards expected of company directors.

The legislation relating to many other Crown organisations limits members' personal liability. The nature of this limitation is governed by the relevant legislation, but commonly relates to acting in good faith and with reasonable care.

In some cases the legislation is silent on the personal liability of members of the board. Where board members are uncertain about the extent of their personal liability they should seek legal advice.