- Title page
- PART ONE: IDENTIFYING AND MANAGING CONFLICTS OF INTEREST
- PART TWO: RESOURCE KIT
- COPYRIGHT STATEMENT: REPRODUCTION CONDITIONS
APPENDIX 3: MANAGING CONFLICTS OF INTEREST - THE NEW ZEALAND EXPERIENCE - CASE STUDY FOR THE OECD.
New Zealand public servants pride themselves on being among the most honest in the world. However, New Zealand cannot afford, and is not prepared, to be complacent about the ethical behaviour of its public servants. Any instance of corruption has the very real potential to undermine citizens' confidence in public institutions on a scale disproportionate to the offence.
Many public functions in New Zealand (for example the tax system, benefit administration and a range of licensing and registration arrangements) rely heavily on voluntary compliance by citizens. That voluntary compliance depends in large part on citizens' perceptions that the public management system is fair, and that the people who operate it are honest and will not abuse their positions. It is important therefore that all New Zealand public servants behave, and are seen to behave, honestly and in accordance with a set of values that the public regards as appropriate for its paid officials.
New Zealand's conflict of interest policies are part of a wider integrity-based ethics regime.
Because of its small size, New Zealand does not have the layer of provincial or state governments of other larger countries. For this reason, for example, New Zealand has only one Inland Revenue Department, Audit Office and Customs Service. Guidelines and procedures for managing conflicts of interest are therefore designed by each individual agency (and not by a central agency or "ethics office").
The New Zealand public sector comprises:
- Public Service departments within the legal Crown;
- A diverse range of State sector organisations outside the legal Crown, most of which are governed by a board (or a single person acting as a board) that is appointed by a Minister, or in some cases elected; and
- Local authorities, outside the central State sector, elected by the public.
The State Services Commissioner is the primary steward of the values and standards of the Public Service, although chief executives of departments are ultimately accountable for the general conduct of their employees. The Commissioner has a legal mandate to issue a Code of Conduct, under section 57 of the State Sector Act 1988, to prescribe "... minimum standards of integrity and conduct that are to apply in the Public Service." This Code of Conduct sets out the general principles and requirements that form the basis of the Government's conflict of interest policies - it is a minimum, principles-based document, supplemented as required by each department's own more detailed code or guidelines.
The Code of Conduct does not apply directly to board members or employees of public sector organisations outside the legal Crown. Although there is no common formulation or discernible pattern to the inclusion of specific clauses detailing conflict of interest policies for board members, some legislation establishing these organisations has such specific clauses. By way of example:
- Board members of the Land Transport Authority must disclose any possible conflict of a pecuniary interest (Land Transport Act 1998, Schedule 1).
- Local authority board members must not vote on any decision in which they have a pecuniary interest (Local Authorities (Members' Interests) Act 1968).
- Board members of Crown Companies must register and disclose any material financial interest in any proposed transaction of their company (Companies Act 1993, Part VIII); and
- Before being appointed to the board of a District Health Board, applicants must disclose to the Minister any conflicts of interest that they currently have or that may arise in the future (New Zealand Public Health and Disabilities Act 2000).
In relation to their employees, these organisations are responsible for designing and implementing their own individual conflict of interest policies. While the Crown has no explicit, formal mechanism for directing how these employees should manage conflicts of interest, Ministers are able to express their requirements through other means, such as letters of expectation and by emphasising values and ethics in accountability documentation. In addition, many of these organisations can and do borrow from the conflict policies adopted by the Public Service.
New Zealand's management of conflicts of interest (and public service values and standards generally) is premised on the assumption that citizens' trust in the institutions of government can be maintained only if there is open government and transparency of process.
Transparent appointment processes
The New Zealand Public Service operates a transparent appointment system. The State Sector Act requires almost all vacancies to be advertised, and appointments to be made on merit. These requirements apply both to the State Services Commissioner's appointment of chief executives, and to a chief executive's appointment of his or her own staff. Appointments within a department must be publicised internally and they may be reviewed at the request of any existing departmental employee. This regime avoids nepotism and secrecy, and enables management of other types of employment conflicts of interest.
Public access to official information
The Official Information Act 1982 establishes the principle that official information should be made publicly available unless there is good reason for withholding it. "Official information" is broadly defined to include all information held by public sector organisations or Ministers. Such information must be made available unless:
- One of the conclusive reasons for withholding applies - such as protection of the security of New Zealand or its economy (section 6); or
- One of the twelve "other reasons" for withholding applies - such as the protection of individual privacy or the protection of the convention of "free and frank" advice to Ministers - and there is no public interest in the release of that information which overrides the reason for withholding (section 9).
The Ombudsmen Act 1975 provides another mechanism by which the appropriateness of any action taken (or not taken) by public servants can be investigated.
Government business is thus open to public scrutiny, with the consequence that conflict of public and private interest, on the part of officials or Ministers, is more likely to come to light.
Disclosure of serious wrongdoing
While not designed specifically for conflicts of interest, the Protected Disclosures Act 2000 promotes the public interest by facilitating the disclosure and investigation of matters of serious wrongdoing in or by an organisation. It also protects employees who, in accordance with the terms of the Act, make disclosures of information about serious wrongdoing in or about their organisation. Serious wrongdoing includes unlawful, corrupt, or irregular use of public funds or resources; conduct that poses a serious risk to public health or safety, the environment or maintenance of the law (including the prevention, investigation and detection of offences and the right to a fair trial); conduct constituting an offence; or conduct by public officials which is grossly improper. If a particular conflict of interest met the definition of serious wrongdoing in the Act, the employee could make a protected disclosure to one of the designated "appropriate authorities" under the Act.
New Zealand adopts a principles-based approach to the identification and management of conflicts of interest. There are no prescriptive definitions and there are few explicit rules detailing how conflicts of interest (or potential conflicts) are to be managed. The Public Service Code of Conduct, for example, sets out the general principles and provides the framework within which individual public servants are able to make informed judgements when faced with competing interests and conflicting values. These interests and values could be financial (e.g. company shares, partnership interests, investments etc) or non-financial (e.g. personal or professional associations, or family relationships). In this latter respect New Zealand's demographics are changing, with an increasing number of citizens identifying themselves as indigenous (of Maori descent) or of Pacific or Asian origin. Assisting and supporting employees to reconcile their family or community expectations with their obligations as a public servant is an important component of New Zealand's conflict of interest policies. For example, the Ministry of Pacific Island Affairs runs training sessions for Pacific public servants, helping them manage the potential conflicts between the obligations of their jobs and the expectations of their family and community.
Identifying conflicts of interest
"Conflict of interest" is defined in the Public Service Code of Conduct as:
"... any financial or other interest or undertaking that could directly or indirectly compromise the performance of their duties, or the standing of their department in its relationships with the public, clients, or Ministers. This would include any situation where actions taken in an official capacity could be seen to influence or be influenced by an individual's private interests (eg company directorships, shareholdings, offers of outside employment) ...
...A potential area of conflict exists for public servants who may have to deal directly with Members of Parliament who have approached the department in a private capacity."
In relation to boards and employees in the wider State sector, the State Services Commission published (in August 1999) the "Board Appointment and Induction Guidelines". These Guidelines were a response to concern over the clarity of roles and responsibilities of boards and their employees. They include guidelines on conflicts of interest, and state that:
"... The key question to ask when considering whether an interest might create a conflict is: does the interest create an incentive for the appointee to act in a way which may not be in the best interests of the Crown body? If the answer is 'yes', a conflict of interest exists. The existence of the incentive is sufficient to create a conflict. Whether or not the appointee would actually act on the incentive is irrelevant."
In relation to board members of Crown Companies, a conflict of interest is defined as a situation in which a board member is "party to, or will or may derive a material financial benefit from" a transaction involving his or her company (Companies Act 1993, Part VIII, Sections 138-139).
Avoidance and disclosure
The Public Service Code of Conduct requires all public servants to observe the principles of fairness, integrity and impartiality in all official dealings. Public servants are required to disclose any conflict of interest, or potential conflict, before they commence employment and during employment if such a conflict arises. It will then be up to their employer (the chief executive of the organisation) to determine whether a conflict of interest exists and, if so, what course of action is to be taken to resolve it.
In particular, public servants are expected to:
- Avoid giving preferential treatment (whether by access to goods and services or access to "inside information") to any individual or organisation with which the employee is involved.
- Avoid any financial or other interest or undertaking that could directly or indirectly compromise the performance of their duties or the standing of their department in its relationships with the public, clients or Ministers.
- Avoid abusing the advantages of their official position for private purposes, for example they should not solicit or accept gifts, rewards or benefits which might compromise, or be seen to compromise, their integrity (where any such offer is made, the public servant is expected to report the matter to his or her employer).
- Ensure that their participation in political matters does not bring them into conflict with their primary duty as public servants to serve the government of the day in a politically neutral manner.
- Consult their employer before agreeing to stand on any public or voluntary body; and
- Consult their employer before undertaking any secondary employment.
In addition, some public servants in senior or specialist positions may be subject to a "restraint of trade" provision in their employment agreement, which limits for a specified period (and to the extent the law allows) the employment they may take up after leaving their Public Service position. It is up to each individual employer to consider whether any such restraint is appropriate and to decide on the particular requirements.
Public servants who belong to a profession, such as accountancy, auditing or the law, are also bound by, and required to comply with, their professional ethical standards.
Ministers of the Crown are obliged to ensure that no conflict exists or appears to exist between their public duty and their private interests. In order to identify the personal interests that might potentially influence decision-making, the Cabinet Manual requires all Ministers and Parliamentary Under-Secretaries to lodge an annual declaration with the Registrar of Ministers' Interests. This declaration, which is tabled by the Prime Minister in Parliament each year (and thus open to public scrutiny), is required to detail:
- Remunerated directorships or employment.
- Substantial minority or controlling interests in a business enterprise or professional practice.
- Minority ownership of company shares or beneficial interests in a trust.
- Ownership of all real property.
- Holdings of mortgage or debt instruments.
- Details of certain overseas travel and accommodation for the previous year.
- Gifts received by virtue of office over NZ$500; and
- Payments received for any outside activities.
In addition, Ministers are required to ensure that staff and political advisers in their offices understand the principles governing the Minister's role and the Minister's relationship with public servants and entities in the wider State sector, and that they consider potential conflicts and take appropriate steps to avoid them. Like Ministers, staff in Ministers' offices must also take care to ensure that they do not improperly influence matters that are the responsibility of others. Where there is a possible conflict of interest (or the risk of a perception of a conflict of interest), the staff member is expected to notify his or her Minister immediately so that the issue can be dealt with. The Secretary of the Cabinet is available for guidance.
Resolving conflicts of interest
How a conflict of interest should be resolved is a matter that is considered on a case by case basis according to the particular merits. This is a management responsibility, there is no separate "ethics office", but the State Services Commission is available to provide general advice to chief executives, board members and employees.
Some conflicts are simply unavoidable. The Board Appointment and Induction Guidelines, for example, recognise that New Zealand is a small country and that therefore there may be only a few individuals who possess the critical skills and experience required for some positions or appointments. As such, the potential for conflicts of interest may be unavoidable in a reasonable number of cases. This reality may be the price of appointing the best possible people to public sector positions. Nevertheless, while a conflict of interest will not necessarily bar an appointment, the conflict must be managed appropriately with adequate measures put in place to protect the decision-making integrity of the organisation concerned and public confidence in it.
The general principle, as set out in the Public Service Code of Conduct, is that:
- Many conflict situations may be resolved simply by transferring a duty from the employee concerned to another employee not affected by the particular circumstances.
- Alternatively, the employee may need to restrict or abandon the interest or activity giving rise to the conflict.
- If these options are not practicable, or if they do not enable the matter to be resolved on a basis which the employee concerned is able to accept, then ultimately the option of resignation from the organisation may need to be considered.
The actual mechanisms that may be put in place to prevent potential conflicts of interest arising, and help resolve any actual conflicts that do occur, are wide-ranging. As suggested in the Board Appointment and Induction Guidelines, the mechanisms include, for example:
- Declaration of interest.
- Transfer of duty.
- Restriction or abandonment of the personal interest.
- Divestment (e.g. the individual agrees to sell any shares or other properties that have created the interest).
- Increased transparency and scrutiny of decision.
- Abstaining from voting or decision-making (i.e. the individual agrees that, in addition to declaring the interest, he or she will not participate in any vote or other decision-making process on related issues).
- Withdrawing from discussions (i.e. the individual agrees that, in addition to declaring the interest and abstaining from the decision-making process, he or she will withdraw from any meeting or discussions about the interest).
- Non-receipt of relevant information (ie the individual agrees that, in addition to declaring an interest and withdrawing from the discussion and decision-making process, he or she should not be given any information, including board papers, written or oral briefings etc, relating to the interest).
- Agreement not to act (ie the individual agrees not to participate in any other action concerning the interest, eg signing documents that relate to the interest).
- Blind trust assignment of pecuniary interests.
- Declining gifts, benefits and hospitality; and
- Severing connections (i.e. resignation).
Conflict of interest processes are particularly necessary in the area of contract management. The Auditor-General, in his "Good Practice for Purchasing By Government Departments" (updated in 2001 in the "Statement of Procurement Good Practice"), discusses identifying and managing conflicts of interest for staff involved in contracting and procurement. The Auditor-General's staff use these guidelines when auditing departments, and raise any discrepancies they identify during the audit in their letter to departmental management. Depending on the materiality of the conflict, the Auditor-General may raise the matter with the Parliamentary Select Committee reviewing the department. In addition, in his September 2001 report on "Financial Conflicts of Interest of Members of Governing Bodies", the Auditor-General provides helpful guidance to agencies on recognising and dealing with conflicts of interest.
The State Services Commission's Board Appointment and Induction Guidelines (referred to above) suggest that several types of conflict of interest are likely to mean that a candidate is not suitable for an appointment, or should resign if the conflict arises during the course of the appointment. These include conflicts of interest which are:
- Unavoidable (i.e. the appointee cannot or will not divest him or herself of the conflicting interest).
- Serious (in terms of the significance and/or value of the interest, and the appointee's circumstances); or
- Pervasive (i.e. the conflict would affect so many of the board's decisions that management mechanisms are not practical).
In some cases the legislation establishing a State sector organisation will prescribe that a board member may be removed for a conflict of interest.
Responsibilities and Penalties
Individual public servants are responsible for avoiding and managing (in accordance with a process agreed with their employer) any conflict of interest that involves them personally. Any breach of this obligation may result in disciplinary action, which may include dismissal, as determined by their employer.
The responsibility for dealing with a public servant who fails to disclose, or to manage appropriately, a conflict of interest sits, as do all management decisions, with the chief executive of their agency (the employer).
In relation to board members, Cabinet considers any declared conflicts of interest before making any appointment to a board. Should any conflict arise during the term of the appointment, the board would be responsible for dealing with it (although the board may choose to consult the Responsible Minister over the matter).
Role of the State Services Commissioner
Under the State Sector Act 1988, the State Services Commissioner has a leadership role in ensuring that public servants carry out the business of government with shared values, high ethical standards and in a spirit of service to the community. A major component of the State Services Commission's work programme, therefore, relates to ethics and, in particular, the provision of guidance for public servants on conflicts of interest and other core values. As the organisation responsible for the production of the Public Service Code of Conduct and the Board Appointment and Induction Guidelines, the State Services Commission is available to advise public servants and board members about these matters.
Because awareness and understanding are insufficient unless they are reflected in behaviour, the Commission has adopted a model of encouraging and facilitating an environment whereby public servants:
- Support the objective of an open and equitable democratic system that encourages participation with minimal coercion.
- Are aware of values and standards that are necessary to achieve that objective; and
- Are discussing, living and leading values and standards in their day-to-day work.
In particular, in relation to conflicts of interest, the Commission's aim is that all those involved in public management, whether elected representatives or officials:
- Recognise the risks.
- Declare and manage conflicts of interest in an appropriate manner.
- Welcome public interest and act on allegations of misconduct; and
- Practise zero tolerance.
While New Zealand has focused on reducing the incentives for corrupt practice and creating an environment in which corruption is unlikely to take hold, there is provision for "bottom of the cliff" legal sanctions. For example:
- The Crimes Act 1961 makes it an offence to offer a bribe to, or accept a bribe from, a public official, judicial officer, Minister, Member of Parliament or law enforcement officer.
- The Crimes Act also makes it an offence for any official to corruptly use or disclose any official information for advantage or pecuniary gain, or to use official information pertaining to the security or defence of New Zealand.
- While the Official Information Act facilitates the public release of official information, it includes criminal sanctions for the release of official information other than in accordance with that legislation. Similar offences are provided for in the Summary Proceedings Act.
- The Electoral Act 1993 requires a State servant wanting to seek election to Parliament to stand down from his or her official position for a period of about five weeks prior to the election. The stand down is without pay, although the candidate can take any accrued annual leave. However, the chief executive of the candidate's employing agency can require the period of stand down to start earlier if the chief executive is satisfied that the candidacy will materially affect the ability of the individual to carry out his or her duties or to be seen as independent in relation to particular duties; and
- The State Sector Act makes it an offence to influence the State Services Commissioner in any matter relating to the employment of an individual chief executive, or a chief executive of a Public Service department in any matter relating to a decision about an individual employee of that chief executive.
Acknowledging that conflicts of interest are an ongoing management issue, the State Services Commission is developing training resources for Public Service chief executives and senior managers to use with their staff. The purpose of the Commission's work is to:
- Increase the confidence of Ministers and the public that public servants know how to, and will, act ethically when faced with situations that involve a conflict of interest.
- Deepen the level of understanding of public servants on how to identify and manage conflicts of interest.
- Raise awareness of, and ways of managing, conflicts of interest so that public servants (and State servants) can seek positive solutions with the support of their department; and
- Encourage dialogue among different population groups about what constitutes ethical behaviour for public servants.
The Commission's resource material on conflicts of interest will:
- Build on (and complement) the successful launch in September 2001 of the revised Public Service Code of Conduct and its supporting "Walking the Talk" material.
- Outline what is meant by conflicts of interest, and suggest how to behave in a way that avoids and /or manages conflicts of interest in an ethical manner.
- Support Public Service chief executives and senior managers to use a video (produced in 2002) about conflicts of interest to assist staff to recognise and manage possible and actual conflicts of interest; and
- Support and encourage departments to reconsider and refresh their policies and procedures and to determine whether the environment supports senior managers and their staff to recognise, understand, and avoid or manage conflicts of interest.
At the political level, the Government is pursuing expanding the Ministerial conflicts of interest register from Ministers of the Crown to all Members of Parliament. In May 2002, the Government announced the introduction of a register of interests for Members of Parliament, to bring New Zealand into line with international practice and ultimately to strengthen trust and confidence in the integrity of Parliament. Members of Parliament would be required to complete returns of listed interests following elections and annually thereafter. All returns would be compiled, presented to Parliament and published. Non-compliance would be dealt with primarily by way of publicity and political pressure.