What is a conflict of interest?

A conflict of interest happens when someone involved in a charity has a personal interest, relationship, duty or loyalty that could affect, or could reasonably appear to affect, the decisions they make for the charity.

A conflict may be actual, potential or perceived. It may also be financial or non-financial.

• An actual conflict exists now.

• A potential conflict could happen in the future.

• A perceived conflict is when someone could reasonably think a conflict exists, even if the person believes they can act impartially.

Why managing conflicts of interest matter

Officers of a charity must act in the best interests of the charity. This means making decisions that support the charity’s purposes, not personal interests or private benefit.

If conflicts are not managed well, they can lead to poor decisions, disputes, private benefit, or damage to the charity’s reputation. In serious cases, unmanaged conflicts can affect whether a charity continues to meet the requirements for registration.

What can happen if conflicts are not managed

Charities Services monitors registered charities under the Charities Act 2005. The Charities Registration Board can remove a charity from the Charities Register if it no longer qualifies for registration or if serious wrongdoing has occurred.

If a charity allows its funds or resources to be used for private benefit, Charities Services may consider whether the decision was reasonable, independent, and free from inappropriate influence. Payments or benefits to related people or businesses may be acceptable if they are at market rates or below, and the decision is made independently and in the charity’s best interests.

Where benefits are not reasonable, not independent, or not in the charity’s best interests, this may raise concerns about misuse of charity funds, private benefit, gross mismanagement or whether the charity continues to meet registration requirements.

When conflicts of interest can arise

A conflict of interest can arise when:

• a person, or someone connected to them, could benefit from a charity decision

• a person’s role in the charity overlaps with another role, job or relationship

• a person’s duty to the charity competes with a duty or loyalty they have to another organisation or person

• information gained through the charity could give someone an advantage outside the charity.

Conflicts are especially common where people are connected through family, whānau, partnership, employment, business or governance relationships.

Examples of conflicts of interest

Common examples include:

Family and whānau interests

Ahmed is on the board of a charity that awards scholarships. His nephew applies. Ahmed declares the conflict and does not take part in the discussion or decision.

Contract or employment interests

Nikau helps run a charity and owns a bookstore that supplies books to it. He declares the interest and does not take part in purchasing decisions involving the bookstore.

Roles in other organisations

Sarah is on the board of a charity that uses a school pool and is also on the school parent-teacher association. If the school is deciding who can use the pool, Sarah declares the conflict and does not take part in the decision.

Payments to decision makers

A sole trustee wants the charity to pay them for administration work. They get independent advice or approval, make sure the payment is reasonable, and keep clear records.

How to manage conflicts of interest

Your charity should have clear processes for identifying, recording and managing conflicts.

Good practice includes:

• keeping an interests register and reviewing it regularly

• asking people to declare conflicts at the start of each meeting

• recording declared conflicts in the minutes

• agreeing how the conflict will be managed before the discussion or decision continues

• making sure the affected person does not influence the discussion or decision, unless there is a clear and justified reason

• recording the decision and how the conflict was managed.

In many cases, the person with the conflict should leave the room, not take part in the discussion, not vote, and not be counted in the quorum for that decision. A quorum is the minimum number or proportion of voting officers needed to make decisions.

When a conflict is serious

Sometimes a conflict cannot be managed by simply declaring it and stepping back from a decision. If the conflict is serious, your charity may need to:

• appoint additional independent decision makers

• seek independent legal advice

• change the proposal so the conflict no longer arises

• not continue with the proposed action

• not appoint a person to a role, or ask them to resign from a position, if the conflict cannot be managed.

Related parties

A related party is a person or organisation closely connected to someone who can influence the charity’s decisions. Related parties may include:

• officers, board members, trustees, committee members or senior managers

• immediate family or whānau members

• a spouse or partner

• an employer, employee or business associate

• another organisation, company or trust the person is involved with

• someone who has significant influence over the person, such as a close friend or community leader.

Charities need to identify related party relationships and report related party transactions in their annual reporting.

Payments, contracts and private benefit

Charities can pay people or businesses for goods or services, including officers or related parties, if the payment is reasonable, supports the charity’s purposes and is properly managed.

Any decision to pay a related person or business should be made independently and at reasonable market rates. If someone receives more than market rates, or influences a decision that benefits them or a related party, this may create private benefit and put the charity at risk.

Your charity should keep evidence that the decision was fair and in the charity’s best interests. This may include quotes, written advice, meeting minutes, and a record of who took part in the decision.

Reporting related party transactions

Some conflicts of interest involve related party transactions. A related party transaction is a transfer of money, goods or services between a charity and a related party.

Registered charities must report related party transactions in their annual reporting when required by the standards. This helps show accountability and transparency about transactions between the charity and people or organisations closely connected to it.

Rules, policies and registers

Your charity’s rules (governing document, trust deed or constitution) should explain how conflicts of interest are managed. It is also good practice to have a separate conflict of interest policy.

Your policy should explain:

• what counts as a conflict of interest

• when and how people must disclose interests

• how conflicts will be recorded

• who decides how a conflict will be managed

• when a person must leave a discussion, not vote, or not be counted in the quorum

• how related party transactions will be recorded and reported.

Find conflicts of interest register templates on the Institute of Directors New Zealand website.

Suggested wording for rules

Your rules could include wording that says an officer must declare a conflict of interest and must not take part in discussions, decision making or the quorum for the matter, unless the charity has a clear and justified process for managing that situation.

Example wording:

“A conflict of interest exists if an officer’s personal interests, relationships, duties or loyalties conflict, or could reasonably appear to conflict, with their duty to act in the best interests of the charity.”