Part 2: Conflicts of interest

• What is a conflict of interest?
• How to identify a conflict of interest
• Our expectations
• Policies and procedures
• Making decisions about particular situations
• Applying our expectations to CPIT

2.1
In this Part we discuss conflicts of interest, and set out what we consider to be generally accepted expectations when conflicts of interest arise in the public sector. Our expectations have been derived from the sources of guidance listed in Appendix 1.

2.2
Our judgements about CPIT’s management of conflicts of interest are based on these expectations and are presented in Parts 4, 5, and 6. This Part does not contain conclusions or findings about CPIT.

What is a conflict of interest?

2.3
A conflict of interest arises where two different interests intersect. In the public sector, a conflict of interest exists where a person’s duties or responsibilities to a public entity could be affected by some other separate (and usually private) interest or duty that he or she may have.

2.4
Conflicts of interest can have both legal and ethical dimensions:

• There may be legislative requirements that set out what must or must not be done in a given situation.¹² Non-compliance may lead to civil or criminal sanctions. Also, a person who exercises powers that can affect the rights and interests of others may be subject to the common law rule about bias.¹³ Only some types of conflict of interest involve legal obligations. Most of those relate to formal decision-making by members of governing bodies at meetings or hearings, or persons exercising a specific statutory power. Few of these requirements are relevant to employees or contractors.
• The ethical dimension involves issues of integrity, honesty, and good faith. A high standard of behaviour is expected of those involved in public life. Regardless of whether or not any legal requirement applies, a conflict of interest will always involve ethical considerations.

2.5
Appropriate management of conflicts of interest is particularly important in the public sector. Where activities are funded by public money, or are undertaken in the public interest, taxpayers will have strong expectations of probity. Media and the public take a strong interest when they think taxes are being spent irresponsibly or misused for private gain. The New Zealand Public Service Code of Conduct says that citizens:

…expect official decisions to be made fairly and impartially, public money to be spent wisely, and public assets to be used and cared for responsibly. They expect the conduct of officials to be above reasonable reproach, and official duties to be performed conscientiously and competently at all times. Where the integrity of the government system is concerned, they will accept nothing less than a full measure, and rightly so.¹⁴

2.6
Public perceptions are important. It is not enough that public officials must actually be honest and impartial; they should also be clearly seen to be so.

2.7
Labelling a situation as a “conflict of interest” does not mean that corruption or some other abuse of public office has in fact occurred. Usually, there is no suggestion that the person concerned has actually taken advantage of the situation for their personal benefit, or that the person has been influenced by improper personal motives. But a perception of the possibility for improper conduct – no matter how unfair to the individual – can be just as significant. Impartiality and transparency in administration are essential to maintaining the integrity of the public sector.

2.8
The key issue is whether there is a reasonable risk, to an outside observer, that the situation could undermine public trust and confidence in the official or the public entity.

How to identify a conflict of interest

2.9
A conflict of interest arises when a particular matter concerning a person in their public role intersects with that person’s other interest.

2.10
The mere existence of the other interest, on its own, may not necessarily cause a conflict. Therefore, one must always focus on what the private interest has to do with the particular matter (that is, the question, decision, project or activity) that is being considered by the public entity.

2.11
One way of considering whether a conflict of interest may exist is to ask:

Does the issue create an incentive for the person to act in a way that may not be in the best interests of the public entity?

2.12
The existence of this risk, or a likely perception of this risk, is what creates the conflict of interest. Whether or not the person would actually compromise himself or herself is irrelevant.

2.13
A conflict of interest can arise in any number of ways. It can arise from a financial interest, or a non-financial association. It can be professional or personal. It can be caused by, among other things:

• employment with another organisation;
• involvement in another business;
• professional or legal obligations owed to someone else;
• holding another office;
• membership of another organisation;
• investments and property ownership;
• beneficial interests in trusts;
• gifts and hospitality;
• debts;
• family or close personal relationships; and
• strong political or personal beliefs.

2.14
It is not the fact of the private interest alone that constitutes a conflict of interest. A conflict arises only if, in a particular situation, there is a connection between that interest and the person’s responsibilities to the public entity.

Our expectations

2.15
When expressed in general terms, the concept of conflicts of interest is well known and accepted, but it can be difficult to know whether and how the concept applies to a particular scenario.

2.16
There are no prescriptive and comprehensive written definitions or “rules” for identifying and dealing with conflicts of interest that apply to all situations throughout the whole public sector. Nor are there published model guidelines that can be adopted and applied universally.

2.17
In part, this is because the concept can cover an infinite range of situations, of varying seriousness. Moreover, each entity’s own circumstances are likely to generate different needs and concerns.

2.18
Nevertheless, we consider that there is a widely recognised understanding of what constitutes acceptable practice and behaviour in the public sector. We have not sought to create and retrospectively apply standards where none have previously existed.

2.19
There are many official publications that discuss different types of conflicts of interest, and which contain some indications of what is and is not acceptable. See Appendix 1 for a list of such publications. Two guidance documents that represent a particularly useful expression of the general expectations in the public sector are recent publications by the State Services Commission. They are the New Zealand Public Service Code of Conduct and a resource kit called Walking the Line: Managing Conflicts of Interest. The latter document discusses a range of factual examples.

2.20
In paragraphs 2.21-2.31 below, we discuss what it is reasonable to expect of a public entity in relation to conflicts of interest. There are two broad elements to our expectations:

• having effective policies and procedures; and
• making prudent decisions about difficult or novel conflict-of-interest situations on a case-by-case basis.

Policies and procedures

2.21
Because the concept of conflicts of interest is complex, compliance with expected standards is often not as simple as creating and enforcing blunt rules. Nevertheless, robust policies and procedures within an entity are an important starting point. They can provide clear rules for the most obvious situations, and establish a process for dealing with the more difficult ones.

2.22
Each entity needs to develop its own policies and procedures, taking into account the nature of its structure, functions and activities, and any applicable legislative requirements. We expect public entities to have policies and procedures that provide for most or all of the following matters:

• state principles that emphasise the entity’s commitment to addressing conflicts of interest, and the importance of people within the entity being alert for such situations;
• establish rules for the most important and obvious actions that people must or must not take;
• establish a mechanism (such as an interests register) for recording those types of ongoing interests that can commonly give rise to a conflict of interest, and a procedure for putting this into effect and updating it on a regular basis;
• set out a process for identifying instances of conflicts of interest as and when they arise (including a clear explanation of how a person should disclose a conflict of interest, and to whom);
• set out a process for managing conflicts of interest that arise (including who makes decisions, and perhaps detailing the principles, criteria, or options that will be considered);
• provide avenues for training and advice;
• provide a mechanism for handling complaints or breaches of the policy; and
• specify the potential consequences of non-compliance.

2.23
The procedures are just as important as the broad statements of principle that they support. Without them, people will not know whether what they have done is sufficient.

Making decisions about particular situations

2.24
No matter how comprehensive a set of policies and procedures is, not every factual scenario can be predicted and provided for. In addition, some types of conflict might not be able to be dealt with by a firm rule one way or the other. The seriousness of many intersecting interests will be a question of degree. Accordingly, the decision about how to treat some situations may need to be the subject of discretionary judgement on a case-by-case basis.

2.25
There are two aspects to dealing with a conflict of interest:

• Identification. A conflict of interest needs to be identified (see paragraphs 2.9-2.14) and disclosed to the necessary people in a timely and effective manner.
• Management. Decisions need to be made about what, if anything, needs to be done to adequately avoid or mitigate the conflict of interest.

2.26
The question of what steps to take in any given situation will require careful assessment and judgement. We consider relevant factors to be:

• the type or size of the person’s other interest;
• the nature or significance of the particular decision or activity being undertaken by the public entity;
• the degree to which the person’s other interest could affect, or be affected by, the public entity’s decision or activity;
• the nature or extent of the person’s current or intended involvement in the public entity’s decision or activity; and
• the practicability of any options for avoiding or mitigating the conflict.

2.27
In cases where the conflict of interest can safely be regarded as remote or insignificant, it will be reasonable to formally record or declare the conflict in some form, but to decide to take no further action. However, it is not generally safe to assume that a disclosure, with nothing more, is adequate.¹⁵

2.28
In the more serious cases, some further steps will be judged necessary.¹⁶ The range of options for avoiding or mitigating a conflict of interest include:

• enquiring as to whether all affected parties will consent to the person’s involvement;
• imposing additional oversight or review over the person;
• withdrawal from discussing or voting on a particular item of business at a meeting;
• exclusion from a committee or working group dealing with the issue;
• re-assigning certain tasks or duties to another person;
• agreement or direction not to do particular acts;
• placing restrictions on access to certain confidential information;
• transferring the person (temporarily or permanently) to another position or task;
• relinquishing the private interest; or
• resignation or dismissal from one or other position or entity.

2.29
The person with the conflict of interest has the obligation to identify and disclose it properly. Once that is done, we consider that the primary obligation to determine the appropriate steps to take (and to direct the person accordingly) lies with the public entity (unless those steps are already clearly determined by a legal requirement or written policy that the person ought to be aware of).

2.30
In the interests of openness and fairness (and to minimise the risk of having to defend allegations of improper conduct), we encourage people to take a cautious approach to these matters and, if in doubt, to err on the side of prudence.

2.31
We recognise that, often, a range of different responses could all be within the bounds of reasonableness. The term “conflict of interest” can cover a broad spectrum of situations and conduct, and the answer is not always clear-cut. Because discretionary judgements are involved, it is important to be careful not to be unfairly critical when reviewing others’ decisions with the benefit of hindsight. We have borne these considerations in mind when conducting this inquiry.

Applying our expectations to CPIT

2.32
The Education Act 1989 and the Local Authorities (Members’ Interests) Act 1968 contain provisions about conflicts of interest that apply to Council members of tertiary education institutions. Those provisions are not relevant here. There are no specific laws that apply to CPIT or its representatives for this inquiry.

2.33
Nor do any other regulatory directives bind CPIT. The New Zealand Public Service Code of Conduct, for instance, applies only to staff of government departments.

2.34
So, in the present case we are not investigating potential unlawful acts. Nor are we comparing CPIT’s actions against a set of written external rules.

2.35
Nevertheless, documents such as the New Zealand Public Service Code of Conduct are of significant persuasive value as an expression of the general standards expected of the wider public sector.

2.36
While CPIT is an autonomous institution, it is also a public entity. There are also public sector ethical conflict-of-interest expectations, which would apply to CPIT.¹⁷

2.37
For this inquiry, we examined whether CPIT had ensured compliance with relevant internal policies and any contractual obligations. We considered CPIT’s further judgements or actions, and whether they were reasonable, based on public sector ethical expectations.

12: For example, see the Local Authorities (Members’ Interests) Act 1968, sections 3 and 6; Education Act 1989, sections 103A, 175, clause 8(8) of Schedule 6, and clauses 19-23 of Schedule 13A; New Zealand Public Health and Disability Act 2000, section 29(6), clause 6 of Schedule 2; and clause 36 of Schedule 3; Health Practitioners Competence Assurance Act 2003, clauses 11-14 of Schedule 3; Weathertight Homes Resolution Services Act 2002, section 35; Corrections Act 2004, section 167; Health and Disability Services (Safety) Act 2001, section 33; Companies Act 1993, sections 139-149; Securities Markets Act 1988, sections 19T-19ZA and 20-29; and numerous other statutes dealing with the boards of particular entities. See also the Members of Parliament (Pecuniary Interests) Bill; Public Finance (State Sector Management) Bill; and Standing Orders of the House of Representatives, SO 164-166.

13: Numerous examples could be cited, but see for instance Calvert & Co v Dunedin City Council [1993] 2 NZLR 460; Auckland Casino v Casino Control Authority [1995] 1 NZLR 142; and Locabail (UK) v Bayfield Properties [2000] 1 All ER 65.

14: State Services Commission, New Zealand Public Service Code of Conduct (July 2002).

15: The only time when this is a fair assumption to make is when an applicable legislative provision expressly permits full participation after a disclosure. Although some legislation aimed at the private sector permits this (the Companies Act is the best-known example), most legislation specific to the public sector does not.

16: Occasionally a conflict of interest may be inevitable and unavoidable, and the matter may have to proceed with the person's involvement.

17: Section 77A(3) of the State Sector Act 1988 is one reflection of this viewpoint. It requires employers in the education service (which includes polytechnics) to “ensure that all employees maintain proper standards of integrity, conduct, and concern for the public interest”. Similarly, section 181 of the Education Act 1989 requires Councils to ensure that proper standards of integrity, conduct, and concern for the public interest are maintained.