Identifying interests

Members have the fullest knowledge of their own affairs, and will usually be in the best position to realise whether and when there is an overlap between their public and private interests. Members must consider their interests from the entity's perspective, and apply an honest and open approach to considering and keeping under review any potential conflicts.

Section 62 of the CE Act specifies when interests must be disclosed. For this purpose, a 'matter' means the entity's performance of its functions or the exercise of its powers, or an arrangement, agreement or contract the entity has entered into or proposes to enter. A member is "interested" in a matter if the member:

• may derive a financial benefit from a matter (s. 62(2)(a));
• is the spouse, de facto partner, child or parent of a person who may derive a financial benefit from a matter (s. 62(2)(b));
• may have a financial interest in a person to whom the matter relates (s. 62(2)(c));
• is a partner, director, officer, board member or trustee of a person who may have a financial interest in a person to whom the matter relates (s. 62(2) (d));
• may be interested in the matter because the entity's Act so provides (s. 62(2)(e)); or
• is otherwise directly or indirectly interested in the matter (s. 62(2)(f)).

Members must not seek to provide paid services to an entity, nor be involved in developing, supporting or advising on any matter considered by the entity, other than through their role as a board member. A member's shareholding or other financial investment in a company which is, or is seeking to be, engaged with the entity represents a direct financial benefit. It is therefore an interest, unless it can be regarded as 'insignificant'. Many entities make decisions that can affect the value of an investment, so the potential impact on a member's interest - or that of a close family member or friend - must be considered when assessing insignificance.

An interest will arise through a member's spouse, civil union or de facto partner, child, or parent who may derive a financial benefit from the matter. The CE Act regards these interests in the same way as financial benefits of a member. However, if a board member, acting diligently and in good faith, is not aware of the financial involvement of a family member, then the member is unlikely to be interested because it would not be reasonably regarded as influencing their responsibility to the entity.

A financial interest in another person may give rise to an interest, because of an apprehension of influence.

An interest may arise when a member is a partner, director, officer, board member, or trustee of a person who has a financial interest in a person to whom the matter relates. Whether it actually comprises an interest depends on whether it is significant enough to be reasonably regarded as likely to influence decision-making. For example, a member may be a trustee or director of an investment business that invests with a party dealing with the entity. As the business will have a financial interest in the participant, the member as an officer of the investment business is likely to be interested.

Certain exceptions are provided in s. 62(3) of the CE Act, including where the member is a member or officer of a subsidiary, or where the interest is so remote or insignificant that it cannot reasonably be regarded as likely to influence the member in carrying out their responsibilities.

Making judgements

The Auditor-General's guide Managing conflicts of interest: Guidance for public entities provides useful discussion to help in making judgements in respect of interests: see www.oag.govt.nz/2007/conflicts-public-entities.

Any family connection could give rise to an interest where there is a reasonable apprehension of bias, eg, if a member has a close relative who may be personally affected by a non-financial decision of the entity that could lead to a conflict for the member.

A member may have an interest in matters affecting the interests of a friend; someone with whom the member has a close and reasonably long-standing relationship with demonstrable intimacy. If such a relationship existed, that could create strong perceptions of a conflict of interest.

General acquaintanceship, such as a shared involvement in professional or sporting associations, would rarely create an interest. Overlapping directorships, for instance, could mean a member is interested, especially where a relationship is long term or a close collegiality has developed. Where a member's business partner has acted as an advocate, adviser or material witness in a matter being considered by the entity, the member is likely to be seen as having an interest.

Where someone had a close association with a business for a significant period before becoming a board member, there may well be a strong perception of a continuing interest even after ending all associations. There is no set time period which establishes remoteness but ending a long business relationship is unlikely to immediately make that interest so remote as to be irrelevant in assessing whether a conflict of interest exists.

Having a definite point of view about a question of law or legislative interpretation of a policy would not give rise to an interest, nor would prior knowledge of circumstances which are in issue. However, a publicly-stated opinion indicating that the member's mind is firmly made up on a particular issue could raise issues of apparent pre-judgement and, therefore, the likelihood of a conflict of interest.

Active involvement by board members in external organisations which lobby or seek government funding is a sensitive matter. Its acceptability would depend on a board member's role within the organisation concerned and the relationship of that organisation with the Crown entity's area of responsibility.