by Prof Leon van Vuuren | Published on 3 December 2018 for The Ethics Institute monthly newsletter
When TEI subject matter experts present on conflicts of interest during training workshops, the response from trainees is usually something along the lines of “the interest should be declared, and then it is fine”. The word ‘disclosed’ is also often used. Seldom do we hear the response that transparently declaring an identified conflict, without taking any further action, is not sufficient. Many people (and this applies even when we are working with members of a governing body or senior leadership team) hold the view that the fact that the conflict has been declared makes it totally acceptable to carry on with business as usual, despite the continued existence of the conflict. According to this approach, acknowledging conflicts makes them go away.
In reality, this amounts to little more than superficial sugar-coating, as it ostensibly exonerates the board member or employee from any further responsibility. And attention is thus diverted from an ethical transgression. A case of such sugar-coated declaration surfaced in South Africa in 2009:
During early 2009, it emerged that Sbu Ndebele, the newly-appointed Minister of Transport, had received gifts from businessmen who had benefited from the “Vukuzakhe” government programme to help emerging contractors while he was Premier of KwaZulu-Natal. The gifts included a Mercedes Benz worth R1.1 million, fuel vouchers and two head of cattle. The gesture was reportedly meant as thanks for Ndebele’s role in creating a platform for small contractors in the province.
He subsequently came under severe media scrutiny. Opposition parties and public interest organisations urged Ndebele to return the gifts, as accepting them would amount to a conflict of interest. The leader of the Inkatha Freedom Party in the KZN Legislature, Dr Bonginkosi Buthelezi, stated that the gifts proved that government contracts are awarded by politicians on a quid pro quo basis.
Ndebele, in his initial response to the criticism, insisted that the lavish gifts did not create a conflict of interest. As the pressure on him intensified, he approached the leadership of his party, the African National Congress. They advised him that he may keep the vehicle, provided that he declare it in the annual register of members’ interests at Cabinet and Parliament level.
Ndebele subsequently decided to return the car and the cattle, although President Jacob Zuma said he was entitled to keep it.
As the story demonstrates, there is much ignorance about conflicts of interest among politicians and organisations’ leaders. The result is that serious conflicts are often downplayed and not addressed. Or, at best, they are relegated to a paper exercise and listed in the organisation’s conflicts of interest register. Again, in reality, this is little more than a CYA (“cover-your-arse”) activity.
The King Code on Corporate Governance for South Africa (King IV) states the a “conflict of interest” – when used in reference to members of governing bodies and subcommittees thereof – occurs when
“…there is a direct or indirect conflict, in fact or in appearance, between the interest of such member and that of the organisation. It applies to financial, economic and other interests of any opportunity of which the organisation may benefit, as well as the use of the property in the organisation, including information. It also applies to the member’s related parties holding such interests” (IoDSA, 2016, p. 19).
The King IV description can surely be extended to all members and employees of an organisation.
A conflict of interest is therefore a situation in which persons are in a position to derive personal benefit from actions or decisions made in their official capacity. When a conflict of interest arises, it does not mean that people are wilfully or unconditionally doing something wrong, but that they are in a position to do something wrong. There are generally three types of conflicts of interest:
- Actual conflicts arise in situations where financial or other personal or professional considerations compromise individuals’ objectivity, judgment, integrity, and/or ability to fulfil their legitimate responsibilities to the organisation.
- Apparent (or perceived) conflicts are existing situations or relationships that reasonably could appear to other parties to involve a conflict of interest. Apparent conflicts exist in situations where an individual employee, a member of the individual’s family, or a close personal relation, has financial interests, personal relationships, or associations with an external entity, individual or organisation, such that his or her activities within their own organisation could appear to be biased.
- Potential conflicts refer to situations that do not necessarily constitute or appear to constitute a conflict of interest, but where there is a reasonable possibility of an actual or apparent conflict of interest coming into play in the near future.
It should be borne in mind that when a perceived conflict of interest causes as much reputational and ethical damage as when there is an actual conflict of interest, such reputational damage may be equally detrimental to stakeholder trust. It is quite a challenge to manage perceptions, especially when they are negative, but it is possible to do so through transparent and proactive communication. Perceptions become reality in peoples’ minds and may trigger negative attitudes and counter-productive behaviour, and it is thus vital to be aware of them.
The rest of this article provides a few high-level guidelines on how to deal with conflicts of interest.
It must be stated unequivocally that a declaration or disclosure is not enough, even when it is legal. Merely disclosing or declaring an actual or apparent conflict does not 1) make it right, 2) provide immunity to declarants, or 3) absolve them from having their situations investigated further.
King IV (IoDSA, 2016, p.55) reminds us that “any such conflicts should be proactively managed”. So, when a conflict or potential conflict has indeed been declared (and the rule of thumb for when to do so is ‘when in doubt, or afraid, declare!’), the organisation should immediately investigate the veracity of the conflict and make a call on its severity. This should be done by functionaries tasked with this responsibility. They should apply their minds, investigate the severity of the conflict and make a recommendation whether the conflict should be provisionally accepted or disallowed.
Those designated with investigating and making a call on a conflict, be it line management or governance cluster practitioners, should be properly trained on how to do so. Thereafter, irrespective of the hierarchical level at which the declarant is positioned, the organisation should display the necessary ethical courage to disallow the conflict to continue. When the declarant is unwilling to eliminate the conflict, the organisation should have the right to dismiss the declarant or, in the worst-case scenario where damage has already been done, institute disciplinary charges.
A non-declaration of a conflict should be an offence subject to dismissal. This may sound harsh, but it makes sense in light of ethical failures that have occurred in South African organisations recently: many of the headline-grabbing stories in fact have undisclosed or unmanaged conflicts of interest as their root cause. Any organisation intent on building an ethical culture should therefore recognise conflicts as a high-risk area requiring an active management approach that goes far beyond simple declarations and registers.