Maintaining standards

22 April 2024

Over the past fortnight alone, two Conservative MPs have lost the whip over misconduct allegations. That brings the number of independent MPs who have been suspended by their parties to 18, which means they outnumber the Liberal Democrats. Against this backdrop, Peter Allanson looks at the rules covering conflicts of interest, fit and proper persons, and gifts and hospitality

A hefty section of many a set of company articles is the bit about conflicts of interest. Handling these well is required of every board so the focus on them in the governing document is right and proper.

The fit and proper person test is less trumpeted but is definitely not restricted to the NHS. In fact, the first organisation to require its directors to declare themselves fit and proper was the Football Association back in 2004.

The final piece in this confessional jigsaw is the gifts and hospitality list, which has plagued everyone—from kings to commoners—for hundreds of years.

Following the rules found in different sectors for these three categories can feel painful but the way an organisation tackles them says a lot about their values and ethics. Are they doing the bare minimum or being exemplars, keen to demonstrate that the way they conduct themselves and their business is beyond reproach?

All three are concerned with the standards of personal behaviour of individuals rather than organisations or institutions.

Conflicts of interest

A conflict of interest is when someone’s judgement or actions at work are, or could be, affected by something unconnected with their role. This includes any circumstances that affect, or could be seen to affect, someone’s independence or impartiality. In other words, when an individual's personal interests conflict with the professional interests owed to their employer or the company in which they are invested.

A conflict of interest arises when a person chooses personal gain over the duties to an organisation to which they belong in some way or exploits their position for personal gain.

Conflicts of interest must be dealt with consistently and promptly. Half the battle is declaring them. Handling follows, preferably in line with an agreed policy derived from whatever the organisation’s constitutional documents require – i.e. the Articles, NHS Constitution, charitable objects and so on.

Conflicts of interest can either be real or perceived. Most organisations acknowledge that their directors and senior employees may have external interests such as other employment, including consultancy work, charity trusteeships and memberships of boards or public bodies. The intention of a policy should not be to eliminate these roles but to ensure that interests are recognised, declared and, where any conflicts of interest arise, they are appropriately recognised and managed.

Some organisations—sports bodies, for example—may have a loyalty clause as part of their conflicts policy. Even though there may be no financial gain, there could be an undue influence on decisions from this type of conflict.

There is usually a hierarchy of mitigation for conflicts of interest. These should be set out in the organisation’s policy and cover: continue, continue with exemption, continue with restrictions or additional oversight, withdraw, reassign, relinquish.

If there is discretion to be applied—and there often is—then the decision is the chair's, or if the chair has the conflict, it is the senior independent director’s. At board level, the minutes of any affected meeting will need to confirm the existence of the conflict and the action taken to deal with it.

The Charity Commission sums this up neatly in its guidance, saying: “Irrespective of the approach trustees take to prevent a conflict of interest from affecting their decision making, they should be able to demonstrate that their decision was made only in the best interests of the charity.” This should apply to any organisation.

Fit and proper persons

The aim of a fit and proper persons test is to prevent corrupt or bankrupt individuals from serving on boards. There is a standard suite of probity requirements around having a clean financial bill of health, being of good character (all convictions declared), and being capable of doing the job with relevant qualifications validated.

Additionally, barristers have a list of professional obligations to the court, their clients and regulators while maintaining their independence. And the third sector fit and proper persons requirement is largely tax-driven; with HMRC breathing heavily down their necks, charities do not need trustees who risk jeopardising their tax position.

To an extent, the requirements of a fit and proper persons test are a set of absolutes: have you been declared bankrupt? Can you prove you really hold the qualifications you list? But asserting that you have the competence to discharge the role is much more of a value judgement and more difficult to demonstrate objectively.

There are tricky waters to navigate in the NHS, where you have to confirm that you have not been responsible for, privy to, contributed to, or facilitated any serious misconduct or mismanagement (whether unlawful or not) in the course of carrying on a regulated activity. ‘Privy to’ is the difficult bit and has the potential to implicate a number of people; the Chinese have a saying that ‘near vermillion one may be stained pink’.

The tax focus of the test in the charity sector takes us into the murky world of when tax avoidance might become tax evasion. Promoters of tax avoidance schemes are regarded as not fit and proper, and while HMRC does not check that all trustees are fit and proper, they may enquire. But you and the organisation certainly should enquire and the key to an effective policy is the way that claims and assertions are validated and confirmed, and that the methodology is made public.

So, it is not entirely straightforward and the only way to navigate the rules is by embracing the concept and the detail wholeheartedly and recognising that Caesar may well have had a point about his wife needing to be above suspicion.

Gifts and hospitality

First cousin to conflicts of interest is the gifts and hospitality register. This is intended to reduce the risk that an individual may be induced by a gift, hospitality or bribe. To mitigate this reputational and strategic risk, all senior staff and board members are asked to declare any association with relevant organisations, such as sponsors, suppliers, funders, event organisers or internal stakeholders.

A gifts and hospitality log does not prevent, for example, an individual being the guest of a partner at an event or awards ceremony or from receiving a small value gift, but by being open and transparent about the exchange, it is possible to identify if such a connection could have any material influence on decisions.

Integrity and pride

So, a fit and proper persons test lets you into the club and the conflict of interest policy and gifts and hospitality register moderate your subsequent behaviour to ensure you remain fit and proper members fit to stay in it.

There are other tests that may be used—disclosure and barring if vulnerable children or adults are involved—but these three self-declarations are the public, outward-facing demonstrations of an organisations determination to act ethically with integrity and pride.

It seems unnecessary to say that these must be taken seriously and dealt with, to use an insurance term, with the utmost fidelity.

GGI is able to offer support in writing policies or assessing the quality of existing policies and checking them against relevant sector codes. We can also carry out investigations when things go wrong.

Meet the author: Peter Allanson

Principal Consultant

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Prepared by GGI Development and Research LLP for the Good Governance Institute.

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