Good Governance Guides

Good Governance Guide: No 2.2

Category: Orientation
Subject: Conflict of Interest Policy
Source: Chartered Secretaries Canada

1. MINIMUM REQUIREMENTS

Policy Outline:

• Define what constitutes a “conflict of interest”;
• Identify who is within the umbrella of the policy;
• Conflicts of interest must be eliminated where required by the organization’s Code of Conduct/Ethics or by specific organizational policies. Where conflicts of interest need not be eliminated, they must be identified, managed and disclosed in accordance with the Code or the specific policy that applies to a particular conflict.;
• If a conflict of interest is addressed in one or more of either the Code or other organizational policies, the strictest standards are to apply;
• Employees or Board members should be given a method to disclose any outside activities which create or could potentially create a conflict of interest. Any doubt about whether a conflict of interest exists must be resolved in favour of finding that the conflict does exist;
• Where a situation is covered by more than one definition of a conflict of interest, the broadest definition applies;
• Existing policies that address conflicts of interest in specific situations (i.e. insider trading policies) should be reviewed by a centralized function (Legal, Audit Committee, etc) to ensure adherence to minimum standards; and
• In addition to the conflict of interest provisions outlined above, the following minimum standards are recommended:

Outside Activities:

• All outside activities, including outside officer positions, direct or indirect ownership interest in a private enterprise, direct or indirect ownership of 10% or more in a public enterprise, elected political office (any level of government or government agency), political appointments (any level of government or government agency), outside employment and charitable/not-for-profit activities should be disclosed in writing to Management before being entered into if they would cause a conflict of interest (as defined above) to arise. Disclosure must include:
  • Description of the proposed activity;
  • Description of the conflicts of interest involved; and
  • Steps to be undertaken to manage or eliminate the identified conflicts.
• Outside activities that would not cause a conflict of interest to arise are not required to be disclosed or otherwise managed. Outside activities generally not requiring disclosure and management might include:
  • Membership in social, religious, political or other similar organizations (not including industry or trade associations) not involving management or other decision making authority or administration activities relating to the organization’s customer relationships;
  • Charitable/not-for-profit activities not involving management or other decision making authority or administration activities relating to the organization’s customer relationships;
  • Employment not involving management or decision making authority or administration activities relating to the organization’s customer relationships;
  • Direct or indirect ownership in a private enterprise which is passive in nature (e.g. personal holding company) and which has no customer relationship with the organization;
  • Personal activities having business attributes (e.g. executorships, trusteeships) but not involving any customer relationships; and
  • Activities of a purely personal nature (e.g. hobbies, recreational sports, education, etc.).
• Outside employment by full-time employees requiring a significant time commitment should be carefully considered and should be avoided where the outside commitment may impact negatively on the employee’s ability to sustain satisfactory on the job performance at the organization.

External Directorships:

• External directorships should be managed in accordance with rules established by the organization to avoid conflicts of interest; and
• Employees holding Directorships with not-for-profit enterprises should require notice to the organization.

2. POLICY EXCEPTION PROCESS

• Violations of the policy should be considered violations of the Code of Conduct/Ethics and should be dealt with in accordance with, or in a manner consistent with, discipline standards established for Code violations; and
• Exceptions to the policy shall be considered exceptions to the Code. Approval should be applied for and granted in accordance with, or in a manner consistent with, processes and standards established for Code exceptions.

3. POLICY COMMUNICATION

• It is essential to ensure that employees and Directors have appropriate training or orientation and communication about the elements of the policy;
• Provide examples of types of conflicts of interest;
• Develop Q & A’s; and
• Ask employees and Directors to provide an annual update and declaration on the policy.