In the wake of the NKF saga, the Government has accepted the recommendations of the Inter-Ministry Committee (IMC) on the regulation of Charities and Institutions of a Public Character. The National Council of Social Services, which is also the governing body for charitable organisations has issued a Code of Governance (“the Code”) which was used as a basis for these recommendations. The Code took effect on 6 July 2006.
The Code is closely modelled after the guidelines set by established international non-profit governance models. The Code is built on a set of core values such as professionalism, accountability, integrity and responsibilities. It sets out the recommended governance practices in 8 key areas:
- Mission and Programme
- Governing Body
- Conflict of Interest
- Human Resources
- Financial and Management Control
- Disclosure & Transparency
- Public Relations & Corporate Communications
This article will deal only with the areas concerning Conflict of Interest.
Duties of directors/trustees
Specific duties of directors/trustees are often set out in the constitution, trust deed, rules from statutory bodies etc. Nonetheless, no matter what the governing rules are or where they are stated, one key and unwavering duty required of a director/ trustee is that he must always act in the interests of the organisation as a whole over his/her own.
In dealing with the issue of conflict of interest for officials of Voluntary Welfare Organisations (VWOs), the Code specifically states:
“VWO Board, staff and volunteers serving the VWO shall act in the best interest of the VWO. There should be no vested or personal interest or interest of third parties. Clear policies and procedures shall be set and measures taken to prevent actual, potential or perceived conflict of interest that could affect the integrity, fairness and accountability of the VWO.”
For the ease of reference, we reproduce here the relevant section of the Code specifically dealing with Conflict of Interest.
3. CONFLICT OF INTEREST
3.1 The Board shall establish clear written policies on measures to avoid conflict of interest in areas where such conflict may arise. Examples of such areas are:
(a) Contract with vendors
Where Board or Committee members, staff or volunteers have personal interest in business transactions or contracts that the VWO may enter into, there shall be a policy requiring a declaration of such interest as soon as possible. They shall abstain from discussion and decision-making on the matter and shall not vote on the transaction or contract. All such discussion and evaluation by the Board or relevant approving authority in arriving at the final decision on the transaction/contract shall always be well documented.
(b) Vested interest in other organisations that have dealings or relationship with the VWO
Where Board or Committee members, staff or volunteers who have vested interest in other organisations that have dealings or relationship with the VWO, and when matters involving the interests of both the VWO and the other organisation are discussed, there shall be a policy requiring a declaration of such interest, and if necessary, they shall abstain from discussion and decision-making on such matters. Personal interest can arise if the person or the organisation that the person has interest in can be expected to make gain or profit from the transaction or contract.
(c) Joint Ventures
The Board’s approval shall be sought before the VWO enters into any joint venture with external parties. Where Board or Committee members, staff or volunteers have interest in such ventures, there shall be a policy requiring a declaration of such interest, and if necessary, they shall abstain from discussion and decision-making on the matter.
(d) Recruitment of staff with close relationship
Recruitment of staff with close relationship (i.e. those who are more than acquaintances) with current Board or Committee members, staff or volunteers shall go through the established human resource procedures for recruitment. The Board member, staff or volunteer shall make a declaration of such relationships and shall refrain from influencing decision on the recruitment.
Board members and volunteers shall serve without a remuneration for their voluntary service to the VWO so as to maintain the integrity of serving for public trust and community good instead of personal gain. However, VWOs may reimburse Board members or volunteers for out-of-pocket expenses directly related to the service.
(f) Paid staff on Board
Paid staff, including the Executive Head and senior staff employed by the VWO, shall not serve as a member of the Board as it can pose issues of conflict of interest and role conflict, and may raise doubts on the independence of Board decisions. The Executive Head and senior staff can attend Board meetings, ex-officio, to provide information and facilitate necessary discussion but shall not take part in the decision-making of the Board.
The above are examples and are not intended to be exhaustive. In general, VWOs shall examine areas prone to conflict of interest and establish clear policies to avoid such conflicts.
Recommendations & Concerns for VWO’s Adoption of the Code
The purpose of the Code was to assist VWOs to comply with existing laws and enhance the accountability and transparency of the VWOs. NCSS has provided three broad options in the adoption of the Code.
The first was to amend the agency’s constitution to adhere to the Code guidelines. The other option was to apply the Code as a best practice guide.A third option is for agencies to take a combination or hybrid approach; incorporating relevant guidelines into the constitution and keeping others as best practice policies outside the constitution (e.g. in organisation manuals).
The distinct difference between the first two approaches was the degree of accountability and flexibility involved. An advantage of amending the constitution was a higher level of accountability by VWOs. However, it put in place rigidity in the day-to-day running of the VWO.
On the other hand, viewing the Code as a best practice guide would allow the VWO Board greater flexibility but at the expense of perceived lack of conviction of the Board. It has been recommended that VWOs should consider the hybrid approach.
The VWO Board could amend the constitution for key guidelines. Other guidelines that might impact the administrative workings of the agency and may need regular updating could be incorporated as best practice guidelines in the organisation.
Application of the Guidelines on Conflict
The Code’s guidelines on conflict of interest should be a key issue for VWO’s consideration and it is recommended here that section 3 of the Code should be adopted into any VWO’s constitution.
Strict measures should always be taken by VWOs to avoid actual, potential and perceived conflict of interest.
In fact, there have been suggestions that when a potential conflict of interest arose, it may not be enough for the Board member concerned to merely disclose his vested interest to the Board.
For example, there may be instances when a key Board member, e.g. the President/ Vice President disclose his/her vested interest in a particular issue, be it the recruitment of a new staff or the purchase of an item, the presence of the key member in the voting process may influence other Board members’ votes so as to maintain good relations with the key Board member.
It is thus recommended that when doubts arose, the Board member with the vested interest should stay out of the decision-making process.
Further, the Code should be seen as a way for the Board to protect themselves against allegations of impropriety. Thus, as one of the key roles of the Board was to assess the Executive Head’s performance, the Executive Head should avoid sitting on the Board to prevent situations of conflict of interest.