This document is part of the Induction resources for board directors resource.
As a board director, you have a duty to place the public interest above your own interests.
If there is a conflict, you need to declare it so that the board can manage it.
This helps to maintain the public’s trust in public sector organisations and their staff.
Some organisations have obligations about conflicts of interest, specific to them.
For example, your organisation may have obligations in:
- their founding Act or terms of reference
- a role, expectations or obligations statement
Types of conflict you can have as a board director
There are 2 types of conflicts you can have as a board director: interest and duty.
Conflict of interest
A conflict of interest is a conflict with your duty as a board director and your private interests.
This conflict exists if your private interests influence, or are seen to influence, your decisions or actions as a board director.
A private interest means anything that can influence you as a board director.
Private interests include 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.
Examples of private interests
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:
- owns property used by a company bidding for government work
- holds shares in a company bidding for government work
- has a position in a company bidding for government work
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:
- concessions or discounts
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 conflict exists if your feelings about a person or group could influence, or be seen to influence, your decisions or actions as a board director.
- family or friends
- personal contacts
- your social, recreational or cultural activities
Consensual personal relationships
Your personal relationships with people who could be affected by your role 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.
For example, a board director may have a relationship with their CEO.
This could be a conflict of interest, as the board makes decisions about the CEO’s performance.
Conflict of duty
A conflict of duty is a conflict between your duty as a board director and your duty to another public or private organisation.
This conflict exists if you have 2 or more roles that have competing priorities.
Conflict with a public organisation
You may 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.
Conflict with a private organisation
You may 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.
Actual, potential and perceived conflicts
A conflict can be actual, potential and perceived:
|Nature||What this is|
|Actual||There is a current conflict with your duties as a board director and your private interests or duties.|
|Potential||There is a potential conflict with your private interest or other duty and your duties as a board director.|
|Perceived||The public could believe your private interests or other duties may influence your performance as a board director.|
If you think you have a conflict of interest, ask yourself:
‘Would a reasonable person make the same decision in light of the same facts and circumstances?’
Your loyalty to the board
If you’re a member of an industry group or another organisation, you may experience a conflict of loyalty.
As a board director, your first loyalty is to the organisation that appointed you.
You have a duty to help it fulfil its functions.
You have this duty even if an industry group or another organisation appointed you first.
How to declare a conflict of interest
As a board director, you should declare any conflict of interest using your organisation’s register of interests.
As a board director, you must:
- declare any interests that could create a conflict of interest
- update the register if your interests change
- review and update your entries in the register each year
What your organisation’s register should include
Your organisation’s register of interests should include:
- all employment you still have an interest in
- all paid or unpaid appointments and memberships of organisations
- investments in unlisted companies, partnerships and other forms of business, major shareholdings and beneficial interests
- accepted or declined non-token offers of gifts, benefits or hospitality made by external bodies from the past 12 months
- if you or someone you care for uses the organisation’s services
- any contractual relationships with the entity or its subsidiaries
How to use the register in your board meetings
As a board director, at the start of a board meeting you have 2 obligations when it comes to conflicts of interest.
Obligation 1: confirm your interests
You must confirm your interests in your organisation’s register of interests are correct.
If they’re not, you must update the register as soon as you can.
Obligation 2: declare interests on the agenda
Even if you record your conflict of interest in the register, you must still declare any interest you have if it’s an item on the agenda.
The board will decide if you can take part in the agenda item and how to manage your conflict of interest.
How to manage a conflict of interest
Your board has a duty to have and enforce a process to manage board directors’ conflicts of interest.
Your board’s process must:
- ask directors to disclose all interests at meetings
- record all disclosures in the meeting’s minutes
- have the board decide if a conflict of interest will affect the board’s duties
Your board’s process should let the board:
- ask a board director with a conflict of interest be absent from meetings while the board considers the conflict
- ban the board director from taking part in any board decisions that relate to the conflict
- notify the Minister as soon as it can after it is aware of any breach of the board’s conflict of interest process
What happens if you declare a conflict
If you declare a conflict of interest with an agenda item, your board must decide how to manage the conflict.
You can’t take part in this decision.
The board has 5 ways it can deal with your conflict:
|What the board can do||What this means|
The board can restrict your involvement in the matter.
This may mean you leave the room during the agenda item and do not take part in any discussion or decision-making on the issue either during the meeting or elsewhere.
|Recruit||The board can appoint a third party that doesn’t have a conflict to oversee part or all the matter.|
|Remove||The board can remove you so you can’t take part in the matter.|
|Relinquish||The board can recommend that the board director relinquish the private interest concerned.|
The board can ask you to step down.
This can be temporary or permanent.
Your board may decide to manage the conflict in a different way. The reasons for doing this should be recorded in the minutes.
If your board doesn’t have a process
If your board doesn’t have a process for managing conflicts of interest, use our conflict of interest model policy.
If you breach your obligations
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.
They may need to notify the minister in writing.
As a board director, we recommend you read: