Conflicts of interest and making decisions
Posted on 16 August 2016
One of the most important things about being an officer of a charity is that you act for the best interest of the charity, and not for any individual or private benefit.
This doesn’t mean that people running the charity can’t be paid for the work they do. It also doesn’t stop charities hiring people and businesses to do work for them, for example, accountants to do an audit, or builders to maintain a community hall.
But it does mean that you need to make sure these decisions are based on whether the goods or services that you’re paying for achieve the purposes of your charity, and that all payments are at reasonable (market) rates. If someone receives more than market rates for the goods or services they provide, they’re receiving a private benefit which is not in the best interests of the charity.
Also, if a charity decides to hire a company to carry out some work, it must be because that company is the best one for the job, and not because the charity wants to support that company for other reasons (like buying a new computer from a family member’s company that receives a commission for sales, for example).
These sorts of situations can create perceived/potential conflicts of interest. This means an officer involved in a charity is making decisions that could be seen to lead to private benefits for themselves or ‘related parties’. What is a related party? Well, this can depend on the circumstances, but we usually consider it to mean:
- Anyone the officer employs or is employed by.
- Any other organisations, companies or trusts the officer has an interest in (for example: as a director or shareholder of a company).
- The officer’s immediate family members (sons, daughters, sisters, brothers, mothers and fathers) and their immediate family members (grandparents, first cousins, uncles, and aunts).
- The officer’s spouse or de-facto partner.
- Anyone else who might have a significant power to influence the officer, e.g. a very close friend or community leader.
Think about what it would look like if the benefit provided to a person was put on the front page of the Stuff website. If you start to feel a bit uncomfortable, it’s probably best to consider the person related.
We’re going to cover this topic in a series of three further posts. The next post will talk about what you need in your charity’s rules document in relation to managing conflicts of interest. Then we will describe the potential consequences of conflicts of interest, including cases where charities have been deregistered because officers let personal interests conflict with the purposes of the charity. Finally, we’ll discuss what this means for your reporting under the new reporting standards.
For more general information about conflicts of interest and being an officer, have a look at our Conflict of Interest page.
The Ministry of Business, Innovation and Employment also has a useful guide(external link) on conflicts of interest.