Agony Uncle: What should I do about a conflict of interest?

Borthwick Chris Jul2019lg

Dear Agony Uncle,

The chair of our not-for-profit aged care organisation is a principal in an insurance agency. Since taking on the position of chair, she has been quoting on all our insurance needs, and has taken over the policies held by each of the six aged care centres we manage. She has not declared a conflict of interest or noted it at board meetings. I assume she is gaining from taking over these policies and I assume she would be earning a commission on them as well. Where does this board stand with this and what should it do?

U.N. Der Written, Queensland

Dear Mr Der Written,

This is an area where details matter, and we don't know the details, so we have to speak in general terms. That said, I'd agree that this situation has the potential to be a declarable conflict of interest.

I should also say that such transactions could be conflicts of interest without being in themselves wrong – that is, the insurance policies could be exactly the most suitable ones for your organisation, and the board or chair or CEO could be exactly correct in choosing them, and there could still be a problem with conflicts of interest.

Whatever the pros and cons of the actual contracts, though, it would be a clear and direct conflict if the board itself had any role in determining what insurance policies the organisation held. If the chair was actually voting on something she had an interest in without declaring it, that would be wrong and probably a legal offence. However, it's unlikely that's the case; normally such decisions are made at the staff or CEO level, and probably not even reported to the board except as an item in the accounts.

If that's the situation, and if the CEO is choosing policies with the chair's company, what are the issues there?

The risk, of course, is that the CEO is choosing those particular insurance policies to please the chair because the chair might have considerable influence over the CEO's annual review and eventual reappointment. For this reason, there's at least the possibility of at least a perceived conflict of interest. It would be preferable – on general principles of transparency and accountability – for the chair to report the matter to the board and seek their guidance on what should be done to avoid such a risk.

If the CEO were to report, for example, that other tenders had been sought but had proved less satisfactory, that would probably be enough. On the other hand, if there were any reason to suspect that the CEO was actually prepared to mislead the board on such a matter, you would have much more serious problems with your governance.

The very fact that you're asking this question of an advice column rather than your chair suggests that you have some reservations about how she’s going to take it. It also suggests that you're reluctant to stick your neck out to find out. Otherwise, your next step would be to raise the matter with the chair privately, and, if it is not satisfactorily resolved, to bring it up at the next board meeting.

If you do have reservations about how the chair is going to take it, where do you go next?

Nowhere, really. When I say "at least the possibility of at least a perceived conflict of interest", I suspect that those two "at least" caveats drain the urgency out of the matter to the point where no regulator is likely to touch it. If I were a regulator, my reaction would be along the lines of, "Well, the board seems to know about it, and hasn't complained – silence gives consent. Why would I want to second-guess them when they'd probably only vote with the chair if it ever came to that?"

You obviously think there may be grounds for concern. How many of the other members share this opinion? Enough to vote the chair out at the next AGM? That's your best shot, if you think it’s crucial.

Has your organisation got a problem? A deal-making dilemma or a constitutional conundrum? Found yourself in a personality pickle or a media muddle? Our Community’s resident Agony Uncle, Chris Borthwick, is here to help. Email your question to [email protected]. Some of the details in the letter above have been anonymised.

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