Part 4: Existence, identification, and CPIT management of conflicts of interest

Christchurch Polytechnic Institute of Technology's management of conflicts of interest regarding the Computing Offered On-Line (COOL) programme.

In this Part we examine whether a conflict of interest arose for Mr Belton or Ms Buck at various times. In situations where a conflict did exist, we discuss whether the conflict of interest was identified and disclosed. We also consider whether the steps taken by CPIT to manage the conflict of interest were adequate in the circumstances.

Did Mr Richard Belton have any conflicts of interest?

Mr Richard Belton has never had any involvement in the TIME or COOL programmes, nor in the Joint Venture.18 His work at CPIT has never brought him into contact with issues regarding BSL.

Accordingly, CPIT’s activities involving BSL never created a conflict of interest for Mr Belton.

Did Ms Vicki Buck have any conflicts of interest?

Ms Vicki Buck has been involved in the TIME and COOL programmes, and the Joint Venture. We examined the nature of her private interests, and her involvement at various stages to determine whether a conflict of interest existed at any of these times.

Ms Buck has two different types of interest in BSL:

  • As a shareholder of BSL, she has a financial interest, which is more than merely a nominal or token shareholding.19 She can be expected to have a desire to maximise the value and profits of the company. This may result in higher dividends, and a higher value of her shareholding if and when she ever sells her shares.
  • As a director of BSL, she has a duty to act in the best interests of the company.20 She can be expected to have a good knowledge of the company’s affairs. She is also remunerated for that role.

Ms Buck’s interests are both as an investor and as a member of the governing body. Together, her shareholding and directorship show that she has a keen awareness of and involvement with the company.

She also has interests and duties as a member of the governing bodies of 3 Partners in Education to the COOL programme. These are not financial interests. They are all community organisations in which she has no beneficial interest, and she told us that her roles are unpaid. Two of the organisations are State schools, and the third is a charitable trust (see paragraph 1.33). Ms Buck has responsibilities to those organisations as a governor, and might reasonably also be expected to personally wish them to do well. However, these roles give her no personal financial benefit. We consider that any interests she has arising out of these organisations are much less significant than her interests in BSL.

Ms Buck told us that even though she was neither a CPIT Council member nor an employee, she had an established principle in her own mind about the requirements to disclose conflicts of interest. From her experience as a local body politician and as a director of a number of companies, Ms Buck knew of the need to habitually declare interests, and was used to doing so. Ms Buck’s contract requires her to tell CPIT about potential conflicts of interest. She acted on this by keeping Mr Scott informed of the various directorships that she held, including BSL. Mr Scott confirmed to us that he knew she had some form of close connection with the company.

The introductory meetings

Ms Buck was present – at least initially – at the meetings on 30 April and 22 May 2003 when BSL was introduced to CPIT. In fact, she was the person making the introductions. She had a conflict of interest then. However, in our view, it was adequately identified and managed at the time.

We are satisfied that at both the 30 April and 22 May 2003 introductory meetings, Ms Buck made oral disclosures to those present about her connections with BSL. At the 22 May meeting, Mr Scott responded by excluding her from the remainder of the meeting.

We are not concerned that Ms Buck remained throughout the first meeting. At that meeting, the participants were not talking about anything larger than the adoption of the TIME programme. Nor are we concerned about the fact that Ms Buck made the introductions at each of these meetings. We do not consider that conflict-of-interest standards are so strict as to prohibit people from introducing colleagues to other associates. Networking is an everyday part of business. Overall, these meetings were informal and exploratory in nature; no significant decisions or negotiations took place.

It would have been desirable for Ms Buck’s disclosures to be more formally documented in writing – either by her or her superiors – at or around the time of the introductory meetings. The only written record by Ms Buck about her conflict of interest that we have been able to find is in an e-mail to the Head of the CPIT School of Computing on 16 June 2003. However, the failure to document the disclosures in April or May is not significant, because we are in no doubt that these oral disclosures were both clearly made and acknowledged. Therefore, we are satisfied that there was nothing improper about the introductions or the actions of those involved at this point.

June to early-August 2003

The meetings and discussions between CPIT and BSL in June, July, and the beginning of August 2003 were the most critical stage in the establishment of their Joint Venture business relationship. This is when CPIT assessed the technical and academic quality of the BSL information technology platform. It is also when CPIT management and BSL came to a mutual understanding that they wished to establish a business relationship, and that they wished to deliver a computing skills pilot course to the public later that year.

An unacceptable conflict of interest would have existed if Ms Buck had been involved in this stage. But she was not. Nor was she actively involved in the negotiations over the terms of the Joint Venture Agreement, which occurred later. Accordingly, there was no conflict between her CPIT duties and BSL interests during this period.

CPIT management excluded Ms Buck – deliberately, it seems to us – from the meetings during this time. This is what we would expect. Based on what Mr Scott told us and our understanding of what happened, it seems that he implicitly accepted that CPIT’s assessment of BSL and its information technology platform, and decisions about whether to develop a relationship with BSL, ought to take place without her involvement. Ms Buck told us that, at the time, she was not even aware of those meetings.

CPIT’s adoption and delivery of the TIME programme was also happening during this period, but Ms Buck had no involvement in this.

Mid-August to September 2003

Very soon after CPIT and BSL had, at least informally, reached the point where they wished to establish a business relationship and develop the COOL programme, Ms Buck became involved again, and she quickly became a key person. She had a conflict of interest during this period.

Initially, in her CPIT role, she was involved in preparing to market the COOL programme to Partners in Education and the public (from mid-August). Later, her involvement became broader, particularly once the Joint Venture Committee had a de facto existence (by late-September). In our view, each of these roles raised a conflict of interest.

It is clear that all the key people in CPIT management were aware that Ms Buck had a connection with BSL when she became involved in marketing the COOL programme from August 2003 onwards. Equally, BSL was aware of her role in CPIT. We accept that Ms Buck never sought to hide or disguise her interests. We were told that she spoke of her BSL connections to various staff on a number of occasions, including an oral disclosure at the beginning of the first meeting of CPIT staff that she attended in relation to the COOL programme (on 19 August 2003). We were told that similar mention was also made at the first meeting of the Joint Venture Committee on 26 September 2003.

When it was proposed that Ms Buck become a member of the Joint Venture Committee in early September, CPIT obtained written legal advice about whether this was permissible. Ms Buck also sought her own legal advice at around the same time. These were responsible actions to take.

As already noted in paragraph 3.19, the tenor of both sets of legal advice was that Ms Buck’s membership of the Joint Venture Committee would not be unlawful. We do not take issue with this legal advice. However, in addition to legal requirements, our inquiry has also considered how well CPIT took account of public sector ethical expectations (see Part 2).

Everyone involved in the Joint Venture was acting with knowledge of Ms Buck’s interests. CPIT told us that the conflict of interest was “adjudged to not be material or problematic”. The belief of CPIT’s senior management at the time seems to have been that, as long as her interests were well known, and no-one objected to her involvement, it was acceptable for her to participate.

We do not agree. Knowledge of a conflict of interest does not necessarily make participation acceptable. As well as being disclosed, a conflict of interest needs to be managed.

Despite the widespread knowledge of Ms Buck’s BSL interests, in our view it was unwise for CPIT to allow her to be involved in either the COOL programme or the Joint Venture Committee. This is because, even though she had not participated in the key decisions about whether or not the business relationship or the COOL programme should proceed, the roles she was asked to take on gave her the ability to influence how both the relationship and the programme operated. Her roles could have helped increase the value of her shareholding in BSL.

The business relationship with BSL and the COOL programme were important new activities for CPIT. They presumably also were for BSL. Ms Buck’s involvement began before the decision-making formalities21 were completed, and her involvement was more than peripheral. By late-September, she was both:

  • one of the key CPIT representatives involved in day-to-day operations to implement the COOL programme; and
  • a member of the governing body of the Joint Venture, representing BSL.

Performing either one of these roles under the circumstances was, in our view, problematic. The fact that she was allowed to perform both roles made the situation more complicated.

We do not doubt that Ms Buck had the requisite skill set to handle the marketing for the COOL programme. It was consistent with her CPIT role, and we were told that she had “the best marketing brain”. CPIT decided to involve Ms Buck in the marketing because of her “innovative ideas and energy”, even in the knowledge of her declared conflict of interest. Using her as one of CPIT’s key representatives in “selling” the programme to the outside world seems to have been seen as a positive move.

However, that also increased her profile, and accordingly increased the conflict-of-interest risks for CPIT. The risk was that Ms Buck could be perceived to be spending some of her publicly resourced time working on projects that could also benefit her private interests. In our view, as CPIT has its own marketing division, it could have marketed the COOL programme without her participation.22

Ms Buck’s position on the Joint Venture Committee elevated her potential for influence further, into a governance role over the business relationship. Here, she was participating in making decisions that affected both CPIT and her private interests. Moreover, once the Joint Venture began operating, we consider that it could have been difficult to tell in which capacity she was acting at any given time.

All the Joint Venture Committee members told us that they were very clear about the capacity in which she was acting. However, to the outside observer, it is not easily possible to demarcate her activities into those undertaken as CPIT Development Manager, and those as Joint Venture Committee member (on behalf of BSL).

Some involvement by Ms Buck may have been more acceptable if both the business relationship and the COOL programme had been expected to be minor activities for CPIT. We were told that the COOL programme became much bigger than was initially envisaged. We accept this, but note that it was always expected to be significant. As early as mid-August – around the time that Ms Buck became involved – CPIT already had hopes of generating 1000 EFTS through the COOL programme. Such a result would have been a major achievement for a brand new short course.

More than one CPIT representative told us that Ms Buck’s position did not really present a problem because the parties are not in conflict but, if anything, have a “convergence of interest”. CPIT and BSL, the argument goes, are working for mutual benefit. They are not competing against each other, and there is no potential disadvantage to CPIT from Ms Buck being involved.

We do not agree with this approach in the public sector.

We consider that a problem existed because CPIT allowed Ms Buck to be put in a position which gave her the opportunity to use her CPIT-funded time, resources, and position to enhance the value of her private financial interests in BSL.

We wish to emphasise that there is no evidence that Ms Buck acted to misuse her position.

Overall, we are satisfied that the conflicts of interest were identified and disclosed. However, these conflicts of interest raised a serious management issue for CPIT. It was up to CPIT to make the decisions, where necessary, about placing limits on Ms Buck’s CPIT activities.

We accept that the activities that occurred from mid-August to September 2003 are less significant than those that occurred in June, July, and early- August 2003 (in which Ms Buck took no part). However, they were still important.

We consider that it would have been prudent for CPIT management to have:

  • excluded Ms Buck from anything other than the most peripheral involvement in the COOL programme; and
  • declined to consent to Ms Buck’s appointment to the Joint Venture Committee by BSL.

For its part, CPIT stands by the decisions it made at that time.

The current situation

As of 5 November 2004, Ms Buck resigned her membership of the Joint Venture Committee. She remains the Development Manager for CPIT, and her private interests in BSL still exist. This does not create a conflict of interest at present because her CPIT duties do not intersect with any current Joint Venture initiatives.

18: Mr Belton advised us that he had come into contact with the BSL TIME programme when he was working in the secondary school sector, before his employment with CPIT.

19: There is no universally applied minimum “threshold” level of materiality for shareholdings. Analogies from similar – albeit non-applicable – laws offer little help. Some statutes set minimum thresholds, but these use various levels. For instance, under the Local Authorities (Members’ Interests) Act, a member of a local authority who owns 10% of the shares in a company is deemed to share the pecuniary interests of that company. (The Act does not apply to Ms Buck’s situation.) Other statutes have no minimum threshold. The common law rule about bias accepts the principle of a de minimis level of significance for a financial interest, but determines it on a case-by-case basis.

20: Section 131(1) of the Companies Act 1993.

21: The contract between CPIT and BSL for the COOL programme was signed on 21 August 2003. The CPIT Faculty of Commerce granted academic approval for the COOL programme on 5 September 2003, and the Joint Venture Agreement was signed on 7 October 2003.

22: In fact, there are records of this team’s involvement in aspects of the marketing for the COOL programme, including the initial development of the marketing plan. Ms Buck liaised with the marketing team at various times.

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