Part 6: Some general lessons for dealing with conflicts of interest

Management of conflicts of interest in the three Auckland District Health Boards.

In this Part, we describe some overall lessons that we consider can be applied to improve the identification, disclosure, and management of conflicts of interest at the DHBs.

These comments apply to the three Auckland DHBs, but may be useful for other DHBs too.

Identifying and assessing conflicts of interest

Use of interests registers

Many public entities have interests registers to record various types of common and ongoing interests that might give rise to a conflict of interest in the future. They may require members or officials to regularly (for example, yearly) submit a declaration listing specified personal interests. Such a declaration may often focus mainly on connections with other organisations or businesses, or other matters that can create particular risks for the entity.

These declarations are not of conflicts of interest, because only the interests are recorded. This method enables relevant managers to be aware of most relevant ongoing interests. It acts as a reminder to members and officials of the need to be alert for conflicts of interest. The register, if reviewed and updated regularly, helps people to monitor situations that could give rise to a conflict of interest, and to identify conflicts of interest at an early stage. However, this sort of register is not compulsory, and is no more than a tool to help members, officials, and public entities to identify and manage conflicts of interest before they create problems. This type of register is not a substitute for disclosing and dealing with specific conflicts of interest when they arise.

If a DHB uses an interests register to record general ongoing interests of key people, the register needs to be kept up to date. It is good practice to formally update it at least yearly (unless the DHB can be confident that all people will update their details when changes in their circumstances occur). The interest needs to be described sufficiently to enable it to be understood, but at that fairly abstract stage it is probably not necessary to include lengthy details about the interest.1

The DHBs need to consider who should be subject to such a register. In our view, it is not necessary to apply it to all clinicians or all staff. As well as members and the senior management team, it may be useful to apply it to one or two levels of management further down the organisation (including, for example, Clinical Heads or Service Managers), and staff based in other important decision-making risk areas.

Sometimes an interests register may perform two functions: it may record general interests and particular conflicts of interest. For DHB members, the law requires conflicts of interest to be recorded in the register. It is reasonable to use an interests register for both purposes, but DHBs need to be clear whether an interest or a conflict of interest is being recorded.

Focus on conflicts of interest, not just interests

Disclosing interests generally can be a useful precursor to disclosing and managing conflicts of interest in particular cases. However, it is not a substitute for doing so. In particular, the statutory requirements for members require them to declare and record conflicts of interest.

The wording of the Act is not as clear as it could be about this distinction, because it uses the term “interests register”. But what members are legally required to declare is when they are “interested in a transaction”. That means having a particular conflict of interest, not simply an interest in general. It is a declaration when there is a connection between their personal interest and a particular matter that is before the DHB.2

Interests cannot usefully be assessed in the abstract. It is necessary to focus on whether the personal interest could affect, or be affected by, the matter that is before the DHB. In other words, all relevant aspects of the nature of the matter and the nature of the person’s interest need to be considered, as well as the answers to such questions as:

  • Is there a connection between them?
  • Do they overlap, intersect, or coincide?
  • How could they be related?
  • What do they have to do with each other?
  • Does the personal interest create an opportunity to act in a way that is not in the DHB’s interests?
  • Does the personal interest create an opportunity to use publicly funded resources or time to advance someone’s own interests?
  • Could the person be improperly influenced in their decision-making?
  • Does the person have a personal stake in the outcome of the decision?

Failing to focus on these questions may not only mean that conflicts of interest are sometimes not identified when they should be. The opposite problem could also arise - that someone is wrongly excluded because of a general interest they have declared when no real difficulty actually exists for the particular matter before the DHB.

Conflicts of interest are best assessed case by case. This involves judgement.3 People may be connected to a matter in different ways, but sometimes it will be necessary to consider whether a possible connection is too remote or insignificant to realistically amount to a conflict of interest at all. Even if it is recognised as a conflict of interest, it may or may not be particularly serious (and it may be more or less serious than a conflict of interest of someone else).4 This assessment will affect what should be done about the situation. It is not appropriate to ignore the issue by simply assuming that everyone is conflicted, and that they are all conflicted to the same degree.

Assessing a person’s connection to another individual or organisation can be difficult. Careful judgement is always required when weighing whether such a connection is close enough to constitute a conflict of interest. It will depend on the closeness, extent, or recency of the relationship or involvement, and also the degree to which the matter could directly or significantly affect the individual or organisation. In exercising this judgement in the DHB sector, some degree of pragmatism is necessary, because a person in a specialised field is likely to know and have previously worked with or for many of the other key players. Simply being acquainted with someone, or having worked with them in the past, will not usually create any problem.

For members, a judgement that there is a conflict of interest must mean that the member withdraws from participation (unless the waiver powers are used - see paragraphs 6.17-6.20). With staff, there is more scope for discretion by their manager depending on the seriousness of the conflict of interest and the other mitigation options available. But usually the answer will be that the person withdraws or is excluded from the DHB’s work on the particular matter.

Considering the position of members

A member does not have a conflict of interest in all or most matters merely because they are a health professional working in a particular area. Members are likely to take office with their own personal or professional views, philosophies, and issues of concern, based on their particular knowledge and experience. A board that is partly elected may have a political dimension, and so it is also natural that members may feel a need to act as advocates or representatives for a particular community of interest. To a considerable extent, this is all entirely legitimate.5

What members need to be particularly careful about are situations where a DHB decision they are involved in:

  • could affect (or be affected by) their own work or personal circumstances (especially, but not necessarily, financially);
  • could affect (or be affected by) a person or organisation that they are closely involved with; or
  • is a matter where they have expressed views in a manner that indicates they have a closed mind or fixed position (in other words, showing prejudice or predetermination) before the matter has been heard or deliberated upon.

Power to grant waivers to members

The three Auckland DHBs have largely not taken advantage of the statutory waiver power that would enable them to make limited use of the knowledge and expertise of conflicted members. In our view, they might find it helpful to do so, to reduce the likelihood that members are conflicted so often that the relevant board or committee struggles to perform its role effectively. Under this power, once a member has disclosed a conflict of interest in a matter, the remainder of the board or committee may resolve to permit the member to take part in the meeting’s deliberation (but not decision) about the matter.6

This statutory waiver power is unusual. Most other statutory rules in the public sector do not contain an equivalent power. We have concluded that it was inserted by Parliament as a deliberate acknowledgement of the likelihood that conflicts of interest may be especially prevalent in DHB boards and committees, and accordingly to allow them some greater lenience. This power gives DHBs a flexibility that many other public entities do not have.

The Act requires the minutes to record such a permission, and the reasons for giving it, as well as “what the member says in any deliberation of the board relating to the transaction concerned”. Some people expressed concern that these administrative requirements are too onerous. We are not persuaded that they are. In particular, we do not consider that the Act’s requirement means that the board must produce a verbatim transcript of the member’s comments. In our view, a fair summary of the member’s contribution would be enough, since minutes are a summarised record of the meeting’s proceedings.

Of course, the waiver power would have to be used carefully, not indiscriminately, having regard to the seriousness of the member’s conflict of interest in the particular situation. In situations where the conflict of interest is especially direct and significant, it would be unwise to use the power.7

Who needs to be considered and when

The three Auckland DHBs are beginning to acknowledge that risks in major contracts are not limited simply to the people who are on the evaluation panel or controlling the contracting process. A range of other advisers or decision-makers, at both higher and lower levels of the organisation, may have a role to play in the process and therefore the ability to exert some influence on the decision. Conflicts of interest may exist among those people. However, we accept that it may not be practicable to extend requirements about signing conflict of interest forms to every single individual who may have some connection to the project. DHBs simply have to remain alert to these risks, and deal with them when they identify them.

Nor are the risks associated with major contracts limited to the stages of formally assessing, recommending, and awarding a particular contract to a tenderer. They may arise at much earlier stages, including at the time of preliminary discussions about a possible project, well before its specific nature and form have been agreed upon.8 Sometimes those early planning discussions can have an important effect on shaping what is ultimately decided.9 There is no single “right time” or “trigger point” in a project when conflicts of interest need to be considered. It can be a risk throughout a process. Of course, in the very early stages, the discussions may be at such a general level that it is difficult to realise that someone has (or could soon have) a conflict of interest. We acknowledge that this can be tricky. Sometimes an interest that is apparently minor at the outset can assume more significance over time, as circumstances or proposals change. But the fact that a matter is a long way from any substantive decision is a factor that can legitimately bear upon any assessment about whether there can reasonably be said to be a conflict of interest yet, and if so how serious it is.

What it means to have a conflict of interest

It is important to remember that labelling a situation as a “conflict of interest” does not mean that corruption or some other abuse of public office has occurred. To say that a conflict of interest exists, and that it needs to be managed, is not an indication of a lack of trust or faith in the member or official concerned. Usually, there is no suggestion that the member or official has taken advantage of the situation for their personal benefit or been influenced by improper personal motives (nor that they are likely to do so).

The member or official, and their colleagues, will often sincerely believe that they will never behave improperly. But the reasonable perception of an outside observer of the possibility for improper conduct or a lack of impartiality can be just as significant when considering how to manage the situation. Conflicts of interest are sometimes natural, unavoidable, and inevitable (and in the DHB sector they are inherent to a considerable extent). They simply need to be recognised and actively managed. Identifying and managing a conflict of interest is usually not about questioning the sincerity of an individual’s motives or intentions. Rather, what is important is being able to show that public decision-making is fair and sound.

When considering how to manage an identified conflict of interest, the question is not limited to whether the member or official concerned is likely to act improperly. Managing conflicts of interest also involves considering appearances - what an outside observer might reasonably perceive. Most often, what needs to be managed (and be seen to be managed) is the risk of the adverse public perception that could arise from the overlapping interests.

None of our comments should be taken to mean that DHBs cannot involve people who have experience, knowledge, connections, or contacts with other organisations. Nor does it mean that members and staff cannot have other commercial relationships with their DHB. But people need to recognise that, because of this, there may sometimes be particular matters in which they should not be involved or in which their involvement needs to be limited.

Approaches to some particular types of conflict of interest

Seeking advice or comments from interested parties

Managing a conflict of interest does not always mean removing or avoiding it altogether. Sometimes a DHB will want to consult with, or seek the advice of, particular people despite (or even because of) their close personal interest in the matter:10

  • They may arguably be self-interested, but that very fact could be what gives them the special knowledge or expertise that the DHB wants to use.
  • There may be very few relevant expert advisers who are reasonably available, all of whom may be conflicted.
  • There may be a reasonable expectation that, to be fair, the DHB would consult with them before making a decision.

In our view, it is possible for DHBs to sensibly use such people where they consider this to be necessary or highly desirable, even though the people could be said to have a conflict of interest.11 The best way to use such people in this position is to do so openly and inclusively, and to be clear about the limitations on their role. For example, the DHB could design a process that uses some or all of the following features:

  • including a large number of people who are likely to represent the full range of different viewpoints, so as to reduce the possibility of any one person exerting too much influence (perhaps also obtaining their advice in a public or semi-public way such as through a forum, discussion group, or hearing);
  • sharing all relevant information widely;
  • explicitly acknowledging that the advisers have their own interests, requiring those interests to be declared, and sharing them with other participants and with the DHB’s decision-makers;
  • ensuring that the role of the advisers is limited to offering advice or comments, rather than making decisions (and perhaps not even making formal recommendations);
  • considering whether to tightly limit the scope of the advisers’ input, perhaps to relevant technical or operational issues, or alternatively to high-level strategic directions (rather than the selection of particular providers or questions affecting matters like price);
  • seeking additional expert advice or reviews by other, more independent, people;
  • designing decision-making criteria that are as objective as possible; and
  • ensuring that the decision-makers do in fact make their own decision, rather than simply adopting the views of the advisers.

These features can help maximise the benefits of collaboration, while reducing the risk that disaffected stakeholders could claim that the process was unfair because of the involvement or connections of particular individuals.12

Referrals to private practice

Some policies have particular guidance for specialist doctors who are in a position where one of their DHB patients may need to be referred to the private sector. That guidance suggests that the doctor should consider inviting the patient to discuss referral to a private specialist with their GP, or at least provide the patient with a list of all suitable specialists (rather than simply referring the patient straight to their own private practice). In our view, this guidance is fair.

Gifts, hospitality, and sponsorship

It is not necessary to forbid gifts, hospitality, and sponsorship. Policies simply need to provide a framework for judging what is acceptable and what is not (and what sorts of approval processes to require for certain matters). In doing so, it is relevant to consider such factors as:

  • Is the person likely to be involved in advising on or making significant decisions about the supplier in the near future? (For example, is it a major tender process?)
  • How significant or valuable is the offer? (For example, free branded pens from suppliers can be regarded as trivial.)
  • Is there a legitimate purpose to the offer? (For example, is there a real and relevant educational benefit for the person? Do they appear to have been singled out and, if so, why?)
  • Is the offer non-targeted or incidental to something else? (For example, is it a social event sponsored by a supplier that forms part of a conference where the person has otherwise paid for their own travel and attendance?)

1: The statutory obligation on members to ensure that the “nature” of their interest is disclosed, which might require a fuller explanation of relevant details, applies when they are disclosing a conflict of interest in a particular matter.

2: See the definitions in the Glossary.

3: See also our more detailed discussion about identifying and assessing conflicts of interest in Parts 2 and 4 of our publication Managing conflicts of interest: Guidance for public entities.

4: Factors to consider in assessing seriousness include the type or size of the member’s or official’s other interest; the nature or significance of the particular decision or activity being carried out by the public entity; the extent to which the member’s or official’s other interest could specifically affect, or be affected by, the public entity’s decision or activity; and the nature or extent of the member’s or official’s current or intended involvement in the public entity’s decision or activity.

5: This point was acknowledged by the High Court Judge in the Diagnostic Medlab case, at paragraph 125.

6: Clause 36(4) of Schedule 3 (for boards), and clause 38(4) of Schedule 4 (for committees). In addition, a board may waive or modify the statutory rules in respect of a member of a committee or transaction or class of transactions before a committee, if satisfied that it is in the public interest or the interests of the DHB to do so (clause 39 of Schedule 4).

7: This point was alluded to by the High Court Judge in the Diagnostic Medlab case, at paragraphs 134 and 158.

8: Although the Act uses the term “transaction”, it defines that term in a broad way to cover a wide range of decisions or activities. See the Glossary.

9: This is what the High Court Judge found in the Diagnostic Medlab case. For example, if a person is likely to have a conflict of interest in the final decision about who to contract, they may also have a conflict of interest in the preceding decisions about whether to contract and precisely what to contract for.

10: The comments in this section do not apply to members of the board and board committees or other people exercising a formally delegated power. Instead, they need to comply with the provisions in the Act, as discussed in paragraphs 2.7-2.13.

11: This point was accepted by the High Court Judge in the Diagnostic Medlab case. The Judge said, at paragraph 126: “A conflict of interest can be benign where the person who is conflicted does not participate in making the actual decision and the decision-makers know about and understand the conflict. If the conflict is declared, the decision-makers can stand the conflicted person down in respect of certain matters, or consider input from the conflicted person while making appropriate allowances for the conflict. The ability to compensate for the conflict cannot extend to voting, however, where the conflicted person could directly influence the outcome or decision.”

12: We saw a useful example of these features being put into practice by the Waitemata DHB during consultation for a strategic planning and prioritisation process for funding called Programme Budgeting and Marginal Analysis.

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