Part 2: The nature of conflicts of interest

Managing conflicts of interest: A guide for the public sector.

What is a conflict of interest?

A conflict of interest is any situation where your duties or responsibilities as an employee or office holder in a public organisation conflict, or could be seen to conflict, with some other interest you might have outside of work.

The other interest or duty might be:

  • holding another public office;
  • being a current or (recent) former advisor, director, or partner of another business or organisation;
  • being a member of a club, society, or association;
  • having a professional or legal obligation to someone else (such as being a trustee);
  • having a beneficial interest in a trust;
  • owning or occupying a piece of land;
  • owning shares or some other investment or asset;
  • having received a gift, hospitality, or other benefit from someone;4
  • owing a debt to someone; or
  • being a relative or close friend of someone who has one of these interests, or who could otherwise be personally affected by a decision of the public organisation.

Having an interest does not necessarily mean you have a conflict of interest

Having a personal interest, on its own, is not what causes a conflict. Everyone has multiple roles and interests at work, at home, in their extended families, or in the community. A potential conflict of interest arises only where your duties or responsibilities as an employee or office holder in a public organisation overlap with one of your other roles or interests.

For example, you are an elected member of a local council and also involved in running a business, on the committee of a local sports club, and a member of a voluntary organisation. Your involvement in the business, role on the committee, and membership of the voluntary organisation are all interests that you have as well as your role as an elected member of the council.

These other interests do not necessarily mean you have any conflicts of interest. An interest becomes a potential conflict of interest only if it overlaps in some way with your role as an elected member. For example, your interest might result in a potential conflict of interest if:

  • your business puts in a bid to provide goods or services to the council;
  • the sports club is located on land leased from the council; or
  • the voluntary organisation seeks funding from the council to help fund its activities.

Why might having a conflict of interest be a problem?

Having a conflict of interest does not mean you have done anything wrong, and it is not necessarily a problem if it is managed properly. Conflicts can arise in all sorts of situations, as the list above shows. Some conflicts are serious, some less so. Some are unavoidable, especially in a small country like ours.

However, in any situation where activities are paid for out of public funds or carried out in the public interest, the public needs to be confident that decisions:

  • are made for the right reasons; and
  • are not influenced by personal interests or ulterior motives.

The risk with having a conflict of interest – at least, one that is not properly managed – is that you will be seen to be advancing your own interests or the interests of others you feel a sense of loyalty or obligation to, rather than the interests of your role as a public servant.

Even if you have no intention of acting improperly, and are confident that you can think and act impartially, if it looks like you might be influenced by personal interests or ulterior motives when making a decision, you risk undermining public confidence in the integrity of that decision. You can also potentially expose the organisation you work for to legal, commercial, political, or reputational risk.

Why managing conflicts is particularly important in the public sector

Conflicts of interest can arise in all walks of life, including the private sector. However, there are higher expectations about conflicts of interest in the public sector because it is public money that is being spent, and public powers that are being exercised.

Where activities are paid for out of public funds, or decisions are made exercising public powers, members of the public rightly expect the people making those decisions to act impartially, without any possibility that they could be influenced by favouritism or improper personal motives, or that public resources could be misused for private benefit.

Also, unlike private organisations, public organisations are subject to specific legal rules that require their decision-making processes to be procedurally fair. Any decision of a public organisation that is tainted by bias, or the appearance of bias, is potentially subject to legal challenge.

This means that conduct that might be allowed in the private sector is not necessarily acceptable in the public sector. For example, under the Companies Act 1993, company directors are required to disclose when they have a personal interest in a transaction, but might then be permitted to discuss and vote on that transaction, despite having an interest in it. Similarly, small businesses in the private sector often employ and contract with family members as a matter of course. Such practices might be unacceptable – or, at the very least, require more careful management – in a public organisation.

Conflicts of interest and corrupt conduct

Corrupt conduct can arise when a conflict of interest is intentionally concealed, understated, mismanaged, or abused.

Experience shows that many, if not most, forms of corrupt conduct involve a conflict of interest. It is also possible to engage in corrupt conduct to do with another person's conflict of interest.

Examples of conduct that could be corrupt include:

  • concealing or failing to disclose a conflict of interest;
  • making false or understated declarations about a conflict of interest;
  • favouring another interest over public duty;
  • improperly influencing others to favour a personal interest;
  • misusing resources to favour a personal interest;
  • improperly accessing, using, or disclosing information about a conflict of interest;
  • acting improperly to favour another person's personal interests; and
  • improperly allowing others to conceal a conflict of interest.

4: Here, issues about conflicts of interest overlap with the management of sensitive expenditure. See our good practice guide, Controlling sensitive expenditure: Guidelines for public entities.