Part 5: Illustrative case studies

Managing conflicts of interest: Guidance for public entities.

5.1
In this Part, we use fictitious case studies to illustrate how conflicts of interest can arise, and be managed, in practice. They are intended to show the range of scenarios that can occur, and the issues that may need to be considered in assessing their seriousness and deciding how to manage them. They should not be treated as prescriptive for any given situation. They are examples, not rules. In reality, sometimes a small difference in context or detail can make a critical difference. People will have to exercise their own judgement.

5.2
The case studies are:

Case study 1: Funding for a club

5.3
Sam is a grants officer for a Crown entity that off ers funding to community organisations for a range of environmental projects. In her role, she carries out an initial assessment of applications and writes reports for the committee that will consider and decide on each funding round. She also monitors the use of the funding.

5.4
Sam is also a member of a small local residents' association. The association has applied for funding to clean up a local stream and carry out a native shrub replanting programme in her community.

5.5
Normally, this application would be one that Sam would deal with in her work.

5.6
A conflict of interest exists here. Someone could reasonably allege that Sam's likely desire for her association to be successful in its bid might mean that she will not be completely impartial in the way she analyses this application (and the other applications that are competing for the same pool of money). The decision to be made is specifically about the residents' association, and probably affects its funding in a significant way.

5.7
Sam should tell her manager about her personal connection to this application. Sam's manager should consider the nature of Sam's role in processing these sorts of applications, whether her position has a significant influence on decision-making, and whether it is practicable for someone else in the organisation to work on the particular application.

5.8
It may be prudent for Sam's manager to ensure that all of the applications for this particular set of funding (including the applications from others) are processed by someone else. If the manager takes this view, it may also be preferable that the other person should not be someone for whom Sam has line management responsibility. If the application from Sam's association is successful, Sam might also need to be excluded from administering that grant.

5.9
Alternatively, it might be the case that no steps are warranted because Sam's role is a low-level administrative one and all the substantive analysis is done by others. Another possibility is that the above steps are impracticable, because Sam is the only person in the organisation who can do the work. In that case, some other option (such as carrying out an additional peer review of her work on the matter) might have to be used.

5.10
In this case, a conflict of interest exists even though Sam is not one of the leaders of the residents' association, did not prepare the application, does not personally have a financial interest in the matter, and believes she could still consider all applications fairly and professionally. The association is small, and so Sam is likely to know its leaders well and work closely with them. However, the situation might be different if the association was a large nationwide organisation like Rotary, and the application was from a different branch of that organisation.

Case study 2: Family connection to a tenderer for a contract

5.11
Hoani is a project manager for a district health board (DHB). The DHB contracts out some functions to private providers. As part of his role, Hoani is running a tender process for contracts for a provider to deliver certain health services.

5.12
Hoani's brother-in-law, who he knows well, is the managing director and a significant shareholder of one of the private companies that is tendering for the latest contract.

5.13
A conflict of interest exists here. It is not a financial conflict of interest, because Hoani is not involved in the tendering company and is not dependent on his brother-in-law. But the family connection to the company is a reasonably close one, and the decision to be made by the DHB directly relates to the company. Hoani is likely to have feelings of loyalty to his brother-in-law (or at least this would be a likely perception).

5.14
Hoani should tell his manager about his personal connection to the tendering company, and the manager should assign the management of this particular tender process to someone else. It may also be prudent to take steps to ensure that Hoani does not have access to information about the other tenders, or other confidential information about this particular tender process.

5.15
It is relevant to the assessment of this situation that Hoani's relative is in an important role at the tendering company. The answer might be different if the relative was in a much more junior position and was not personally involved in the company's tender, especially if the company was a large one. The answer might also be different if the relative was a distant relative whom Hoani had met only a few times in his life. Assessing the closeness of a personal connection to someone (or the appearance of such closeness) requires careful judgement.

Case study 3: Employment of a relative

5.16
Stephanie is the principal of a secondary school in a small town. She takes a leading role in handling the recruitment of key staff.

5.17
A vacancy has arisen for the position of finance manager and Stephanie's husband has expressed an interest in applying for the position.

5.18
Stephanie has a conflict of interest here. The school needs to employ staff on merit, and must avoid perceptions of undue influence or preferential treatment in appointment decisions.

5.19
Stephanie should advise the chairperson of the school's board about the situation. The board should ensure that this appointment process is handled entirely by others, and that Stephanie has no involvement in the process. Because of Stephanie's own position, the board needs to take extra care to ensure that the process is truly transparent and competitive, so that all suitably qualified people are able to apply and be fairly considered, and that there can be no reasonable suggestion that Stephanie may have influenced the decision from behind the scenes.

5.20
But managing the initial appointment process is not the only type of conflict of interest that needs to be considered carefully by the school. Issues are also likely to arise in the ongoing working relationship, where there are matters that directly affect or involve both Stephanie and her husband.

5.21
It is a fact of life that there will be times when two people who are related – or who are in a personal relationship – will work for the same organisation. That is not usually improper in itself. Indeed, it would often be wrong for someone to be disadvantaged simply because of who they are related to, especially in a large organisation where the two people do not work closely together each day.

5.22
However, sometimes – and depending on the nature of the position – appointing someone who is a relative could cause difficulties, even where a fair process has been followed. This is because it can create a risk of a lack of independence, rigour, and professionalism in ongoing decision-making. In a public entity, it would usually be unwise for relatives to hold two of the most senior positions, or to hold positions that are in a direct reporting relationship.

5.23
In Stephanie's husband's situation, the school's board could consider whether it would be able to manage the frequent and significant conflicts of interest that would be likely to arise if Stephanie's husband was appointed. The two roles are senior ones and likely to involve a direct reporting relationship (or at least a lot of working closely together on managing the school's finances).

5.24
It can be difficult to decide the fairest course of action in these situations. Here, the board might decide not to the appoint the husband because it would be too burdensome and complex to try and manage the likely ongoing conflicts of interest.

Case study 4: Public statements suggesting predetermination

5.25
Ruth is an elected member of a district council. She sits on the council's planning hearings committee, which considers and decides on resource consent applications.

5.26
During the last election campaign, Ruth pledged to oppose an ice-skating rink that a developer hoped to build in town. One of her published campaign pledges was "Ruth will sink the rink". Later, she declared in the local newspaper that the proposal would succeed "over my dead body". The developer has now applied to the council for resource consent to build the rink, and the application is about to be considered by the planning hearings committee.

5.27
Ruth's previous comments are likely to mean that she is biased. Even if she is not biased, there will certainly be a very strong public perception that she is. If she participates in decision-making on the resource consent application by the council or its committee, the developer could argue that it has not had a fair and impartial hearing, because one of the decision-makers had a predetermined view. The council's decision could be open to legal challenge on the ground of bias.

5.28
Ruth should stand down from the planning hearings committee for its consideration of this application. (If she refused to do so, and the council was very concerned about the legal risk to its decision that her involvement would cause, the council might be able to resolve to remove her from the committee.)

5.29
Although local body politicians can be expected to take office with pre-existing views and policies on a wide range of matters, their role sometimes requires them to act judicially. When acting in that capacity, they should take extra care not to express views in a way that suggests their mind is firmly made up about such a matter before having heard all views, or that their position is so fixed that they are unwilling to fairly consider the views of others, or that they are not prepared to be persuaded by further evidence or argument.

5.30
The type of function being exercised is relevant to whether the line has been crossed. In Ruth's case, a strict standard should be applied, because the council is acting in a regulatory capacity, and because a resource consent grants the holder a legal right. The council needs to follow a fair process and make its decision on lawful grounds that comply with the Resource Management Act 1991, because it is making a decision that could be appealed to the Environment Court or be subject to judicial review by the High Court.

Case study 5: Decision affecting land

5.31
Tom is a civil engineer and works for a State-owned enterprise (SOE) that is responsible for a national infrastructure network of gas pipes. The SOE is planning to build a major new mains pipeline to increase supply capacity from a refinery to a large city.

5.32
The pipeline has to cross a distance of 300 kilometres, and the SOE has come up with several different options for its route, which it will now consider in more detail. The SOE has to acquire land – compulsorily if necessary – along its chosen route. The project is opposed by many people who live along the possible routes, who fear the pipeline will adversely affect the natural environment and devalue their remaining land. Tom has worked on a number of areas of the project, and has now been appointed to the Route Options Working Group that will assess the route options and make a recommendation to the board.

5.33
Tom is also part-owner of a farm that lies directly in the path of one of the route options.

5.34
Tom has a conflict of interest here. He has a personal stake in the decision about which route to choose, because his land could be affected. Although the working group is not the final decision-maker in this matter, it does have a key role in analysing the route options and making a recommendation.

5.35
Tom should advise his manager that he has an interest in a property affected by one of the options. Tom's role will need to be considered carefully. It may be that Tom does not mind whether the pipeline ends up crossing his land – he may not share any of the concerns of the project's opponents. He may believe that he could contribute conscientiously to the working group to help it arrive at the best technical answer. But his manager should bear in mind the risk that, if Tom's personal connection becomes publicly known, others might easily think that it could affect his views or actions.

5.36
His manager might have to remove him from the working group and assign him to other tasks. (There may be other aspects of the project that Tom remains well-suited to work on, which have no connection to the question of which route to choose.) It may also be prudent to ensure that Tom does not have access to confidential information about the decision before it is made public, in case he is considering selling his land.

5.37
Alternatively, Tom's expertise may be indispensable to the project, or he may have a very small part in the overall process. Some other options might therefore need to be considered (such as only partly limiting his role, or imposing extra supervision).

Case study 6: Gifts and hospitality

5.38
Rawiri works in the corporate services division of a government department. As part of his role, he manages the department's contractual relationship with its preferred rental car provider. The arrangement with this preferred supplier has been in place for several years, and so the department has decided to re-tender the contract. Rawiri has told the existing provider that he will soon be inviting expressions of interest for a new contract from the existing provider and its main competitors.

5.39
Rawiri has regular relationship management meetings with the existing provider. At a recent meeting, the provider off ered to fly him to another city to inspect a new fleet of cars that will shortly be available, and said that the provider would also be able to arrange for Rawiri to have complimentary corporate box tickets to a rugby test match that happened to be on that night, and to stay on for the weekend in a downtown hotel.

5.40
This situation creates risks at any time, but especially given the imminent tender process. Rawiri might not be seen as impartial if he is involved in choosing the new preferred supplier. A competitor of the existing provider could allege that Rawiri is being given an inducement or reward in the implicit expectation that he will look more favourably on the existing provider in the coming tender round (or that he will receive further gifts if the existing provider is successful).

5.41
Rawiri should discuss the off er with his manager, and carefully consider the department's policy on gifts and hospitality.1 Given the circumstances, it would not be appropriate to accept the off er of the sports tickets and hotel accommodation. With the offer to be flown to another city to inspect the new fleet of cars, careful consideration should be given to whether business reasons can justify the visit. (If it goes ahead, the public entity might decide to offer to pay the cost of it.) If other forms of gift or hospitality have already been accepted, the appropriateness of Rawiri having a role in the coming tender process might need to be reconsidered, too.

5.42
This does not mean that gifts must always be refused. It is reasonable to consider the value or nature of the gift and extent of personal benefit (for example, it may be acceptable to accept a gift that is inexpensive and widely distributed). The context and reason or occasion for the gift is relevant, too. For an entity that operates in a more commercial environment, some types of gift or hospitality may be seen as a necessary element in maintaining relationships with stakeholders and clients. However, in Rawiri's case, the risk is higher because of the proximity to the coming tender round where a strict and fair process will need to be followed (and because the justification for at least some elements of the offer appears dubious).

Case study 7: Making a public submission in a private capacity

5.43
Ken is an elected member of a city council. The council is proposing to adopt a new bylaw regulating the location of brothels. As it is required to carry out a formal public consultation process on its draft bylaw, the council has invited written submissions and will hold a public hearing where submitters can make an oral presentation to a council committee. The adoption of the bylaw will be decided by a vote of the full council.

5.44
Ken feels strongly about the draft bylaw, and wishes to lodge a submission.

5.45
This situation may create a conflict of interest for Ken.

5.46
Some public entities will have a code of conduct or policy that prohibits their members or officials from making public submissions to the entity in a private capacity.2

5.47
Assuming that Ken will not be breaching the council's code of conduct, he will be entitled to exercise his democratic right to make a submission, like any other private citizen. But, if he does so, he should not participate in the council's decision on whether to adopt the draft bylaw; nor should he sit on the committee that hears and considers the submissions. Otherwise, his behaviour could indicate predetermination. Ken would create the perception that he is attempting to act as both an interested party and a decision-maker on the same matter or, in other words, acting as a judge in his own cause. The council's decision could be open to legal challenge on the ground of bias.

Case study 8: Mixing public and private roles

5.48
Antonia is a senior scientist working for a Crown research institute (CRI). The CRI has developed a new product that has significant revenue-earning potential, and Antonia has worked on the product as part of her role in the CRI. However, the CRI needs help in manufacturing and marketing the product on a large scale, so plans to enter into a joint venture with a private company. The CRI is considering appointing Antonia as one of its representatives on the governing body of the joint venture.

5.49
Coincidentally, Antonia is also a shareholder in the private company that will be the CRI's joint venture partner (although she had no role in the CRI's selection of it).

5.50
The situation creates a conflict of interest for Antonia. She stands to benefit from the financial success of the private company. The fact that there may be no direct disadvantage to the CRI (because the joint venture partners are working together, hopefully for their mutual benefit) does not remove the conflict of interest. Her interests in both the CRI and the private company could create confusion about her role and primary loyalty. She could be accused of using her official position in a way that advances her own private interests.

5.51
Antonia should advise her manager. It will probably be necessary for Antonia not to be given any major role in governing or managing the joint venture, while she has an interest in the private company.

5.52
Antonia's manager might also need to think carefully about what other work, if any, it is appropriate for Antonia to do on the project in her capacity as a CRI employee. This decision may not be clear-cut. Antonia might be the best person in the CRI to carry out certain tasks, but the risk is that she could be regarded as spending a large part of her time as an employee of a public entity, and using the CRI's resources, to carry out work that has a significant element of private benefit for her. Her manager might judge that some involvement in the project is acceptable (or even necessary), but it may also be desirable to confine this. For example, Antonia's role could be changed so that she does not have the ability to influence decisions about how the joint venture and project are run. Alternatively, Antonia might be asked to give up one of her roles – that of employee or that of shareholder.

5.53
If circumstances changed to a point where the CRI and the private company became direct competitors with each other, then Antonia's situation might become even more difficult (especially if she remains in a senior position at the CRI, or is still involved in this particular area of work). In that case, it may become necessary for Antonia's manager to insist on divestment of one or other role – either that she relinquish her private interest or leave her job.3

Case study 9: Personal dealings with a tenderer for a contract

5.54
Sandra is a consultant who specialises in project management. Her services have been engaged by a government department to help it carry out a new building project. As part of this role, Sandra has been asked to analyse the tenders for the construction contract and provide advice to the department's tender evaluation panel.

5.55
Sandra has a lot of personal knowledge about one of the tenderers for the construction contract. She used that firm to build her own house last year, and she is currently using it to carry out structural alterations on several investment properties that she owns. Because of this, she knows the directors of the company very well, and has a high regard for their work.

5.56
This situation may create a conflict of interest for Sandra. She is expected to impartially and professionally assess each of the tenders, yet she could be regarded as being too close to one of the tenderers.

5.57
In Sandra's case, it is probably unwise for her to play a role in the selection of the tenderer, and she should be replaced for that role. (This may or may not require ending the consultancy arrangement altogether, depending on what else Sandra has been engaged to do.) Her dealings with the firm are recent and significant. The risk is that, if this firm wins the contract, Sandra's personal connections with it might allow someone to allege that the department's decision is tainted by favouritism.

5.58
These sorts of situations are not always clear-cut. Particularly in small or specialised industries, people often have had some degree of personal knowledge of, or previous dealings with, other people or organisations that they have to make decisions about. That is not necessarily wrong. Indeed, they will often be chosen for this role precisely because of their experience or expert knowledge, and that might include general impressions about the reputation or competence of others. So, sometimes, these sorts of connections might be judged to be too remote or insignificant. For instance, in this case, the response would probably be different if the firm's private work for Sandra had been a single, smaller job carried out several years ago.

5.59
To take another similar example, careful judgement would also be necessary if the connection was instead that the tendering firm was run by a friend or acquaintance of Sandra. For example, it might be improper for Sandra to be involved in assessing the tenders if the firm was run by a very good friend she had known for many years and who had attended her wedding. By contrast, there might not be any problem if Sandra simply knew the person in a casual way through membership of the same sports club. Further careful judgements might be necessary if Sandra had worked for the firm. For instance, the situation might be problematic if she had been a full-time employee within the last year, or was also currently providing significant consultancy advice to the firm on another matter. On the other hand, it might not be problematic if she had worked for the firm several years ago, or if she had provided only occasional pieces of consultancy advice in the past.

5.60
This case also shows that public entities need to think about whether and how to manage conflicts of interest that arise for someone who is not a member or employee, but is instead a consultant or contractor. Sandra's role is important to the department and affects a key decision it has to make, and so can expose the department to legal and political risk. She should be required to agree to abide by the relevant conflict of interest policy that exists for staff. The departmental manager who oversees her work should ensure that she understands the policy, and should monitor her in the same way as an employee.

Case study 10: Duties to two different entities

5.61
Jean-Paul is a member of the council of a tertiary education institution (TEI). The TEI has some contracting arrangements with private organisations to help to deliver some educational courses. One of those arrangements is with a charitable trust, under which the trust is funded by the TEI to prepare, administer, and teach the course on behalf of the TEI. However, the TEI is now about to decide whether to discontinue this arrangement.

5.62
Jean-Paul also happens to be one of the trustees of the charitable trust.

5.63
Jean-Paul has a conflict of interest in this decision. He may not be affected personally by the decision, but the trust will be, and he is closely associated with the trust. (The conflict of interest may be particularly acute if the course is a significant source of the trust's funding and ongoing viability.) In addition, as a member of the governing body of the TEI, Jean-Paul has a duty to act in the best interests of the TEI, but, as a trustee, he also has a duty to act in the best interests of the trust. In this case, the best outcome for one entity may not be the best outcome for the other, and so it may be impossible for Jean-Paul to faithfully give effect to his obligations to both entities.

5.64
Jean-Paul should declare a conflict of interest at relevant meetings of the TEI's council, and refrain from discussing or voting on the TEI's decision. It might be wise for him not to be provided with confidential information about the matter. Jean-Paul may also need to consider whether he has a conflict of interest in the matter at meetings of the trust.

Case study 11: Professional connection to a tenderer

5.65
Viliami works for a large multi-disciplinary professional services firm. Viliami, through his firm, has been engaged by an SOE to help it choose a contractor to manage a major land development project. Viliami is the person who will provide expert advice to the panel that considers tenders.

5.66
Another division of Viliami's firm wishes to submit a tender for the project.

5.67
A conflict of interest exists here. Viliami will be providing advice about a matter that affects his own firm. Viliami does not personally have two conflicting roles, but his firm does, and that creates a problem for him. In some situations involving organisational connections, different individuals in the organisation can be managed by insisting on a "Chinese wall" separation of roles and information. Because this device is not always entirely satisfactory, it is best reserved for situations when the connection is almost inevitable or the risk is very low. In this case, however, the connection is fairly direct, even though it is not intended that Viliami be one of the individuals managing the project. Another tenderer might object that he is unlikely to be impartial. The risk of challenge could be high, especially if the project is worth a lot of money.

5.68
Viliami should discuss the matter with the relevant manager in the SOE. If his firm's tender is to be considered, it is likely that Viliami will not be able to continue with his role. Alternatively, when it first engaged Viliami's services, the SOE could have insisted on a condition that his firm would not be permitted to tender for the project.


1: Most entities will have an internal policy that sets out in detail what is or is not acceptable in this area. See also our 2007 publication Controlling sensitive expenditure: Guidelines for public entities (available at http://www.oag.govt.nz/2007/sensitive-expenditure), and the State Services Commission's Guidance on acceptance of gifts, benefits and gratuities (available at http://www.ssc.govt.nz/display/document.asp?navid=278).

2: In particular, senior officials – or officials who work in policy roles – in the public service need to take extra care to maintain their political neutrality.

3: If the private company regularly carries on business in the same general industry as the CRI, the CRI might have an internal policy prohibiting Antonia from being involved in such a company anyway.

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