Appendix C: When board directors are also organisational executives

In its simplest form a conflict of interest arises when a public sector employee, their friends, family, associates and/or enemies could, or be perceived to, derive some advantage – or disadvantage – because of actions the public sector employee undertakes in their official role.

In situations where Board Directors are also executives within the same organisation, advantages may be obtained as a consequence of Board discussions and decisions about executive remuneration, organisational structure, succession management and the recruitment and performance assessment of the CEO. Advantages that may be – or perceived to be – obtained could include salary increases, preferential treatment in the workplace, increased career opportunities, or the creation of impediments for rivals.

The Public Sector Standards Commissioner has issued a policy framework for dealing with conflict of interest. In this document, the Commissioner states that, ‘all public sector employees have a duty always to put the public interest above their private interests when carrying out their official duties.’¹

There are a number of options available for managing conflict of interest.² Each public sector Board needs to follow clearly documented procedures for identifying and managing actual, potential or perceived conflicts of interest.

In the situation where some Board Directors are also executives within the same organisation, the best option is for Board Directors who are also employees of the organisation to remove themselves from all activities, including discussions and decisions, whose outcomes could deliver benefits to them as individuals.

This includes activities to define the requirements of the CEO role, establish terms and conditions of the CEO role, ranking of CEO role candidates, the decision to offer the role to a particular candidate, and all discussions relating to the assessment of the CEO’s performance. Only Board Directors who are not also employees of the organisation should take part in these Board activities.

Footnotes

1. Public Sector Standards Commissioner, Conflict of interest policy framework: Victorian public sector (State of Victoria, 2009) available at www.vpsc.vic.gov.au. See also advice provided on the VPSC website about conflicts of interest and duty
2. The conflict of interest policy framework identifies six common responses: register; restrict; recruit; remove; relinquish; or resign.