Have Your Say - Top Risks for Schools in 2024
Subscribe

Conflicts of Interest in Schools: How do you Manage Them?

20/07/16
Resources

If you sit on a board, you have a duty to act in the best interests of your organisation, regardless of whether you are the board member of a school or a multi-billion dollar company listed on the stock exchange. As not all human beings are altruistic, laws are in place which acknowledge that if your personal "interests" may be affected by a board decision, you may have a conflict in deciding between those personal interests and what is in the best interests of the school. Legislation then requires that the board must take steps to manage that conflict, so that the school's best interests are protected.

But what exactly is an "interest"? And how can you or your Board demonstrate that you are acting in the school's best interests? Conflicts of interest can be actual, potential, or perceived, and any or all of them can cause enormous harm to a school’s reputation, operation, and even its continued existence.

Conflicts are everywhere

It can be argued that this obligation imposed on a school board member is even more complex than that of the (non-school) company director. While a director of an ASX listed entity will usually be addressing conflicts touching on his or her related business interests, a school board member will often have to deal with actual, potential or perceived conflicts relating to:

  • the best interests of their own children who attend the school;
  • family members who are employed by the school;
  • balancing faith-based interests with more general educational or secular requirements;
  • accountants versus the educationalists versus the marketers, in allocating budgets; and
  • in country schools the likelihood that every business with which the school may have dealings will be related to a board member in some way.

In the face of such a wide array of interests that may cause conflicts, what does the law require of board members?

Managing conflicts in schools: What does the law say?

The obligation to act in the best interest of the school comes from a variety of sources. Non-government schools usually fall into the categories of being corporations limited by guarantee, which brings them under the governance requirements of the Corporations Act, or incorporated associations, which brings them under State or Territory Associations Incorporation Acts. Most schools are also registered as charities, which brings them under the governance requirements of the Australian Charities and Not-for-profits Commission (ACNC) Act. Furthermore, there are school registration requirements in most States and Territories which also mandate the management of conflicts as a condition of registration and renewal of registration. Non-compliance with a source of obligation may lead to de-registration (as a school and/or a charity) or other sanctions.

ACNC Governance Standards

Registered charities must abide by the Governance Standards issued by the ACNC. Fortunately, since 2015 companies which are limited by guarantee and which are registered as charities are only required to comply with the ACNC Act Governance Standards, and not those of the Corporations Act as well.

Governance Standard 5 prescribes various duties which the 'responsible persons' of a charity must comply with, including management of conflict of interests. For ACNC purposes, the term "responsible person" refers to those responsible for governing the charity, and may include board members, senior management and other officers of the school depending on their responsibilities. This Standard is based on and covers similar obligations applied to directors and officers under the Corporations Act, such as the obligation to exercise due care and diligence, act in good faith, not use their position or information of the school in an improper way, and to disclose material personal interest.

The ACNC have issued a guide on how to manage conflicts of interests.

Schools Which Are Corporations

Even if your school is not registered as a charity, the duty to properly manage a conflict of interest still applies under the Corporations Act. Non-compliance may lead to hefty fines.

Schools which are incorporated associations

If your school is an incorporated association, you must also abide by the governance requirements in the associations incorporation legislation in your State or Territory. These include: the Associations Incorporation Act 2009 in New South Wales, Associations Incorporation Act 1981 in QueenslandAssociations Incorporation Reform Act 2012 in Victoria, and Associations Incorporations Act 1991 in the Australian Capital Territoryand so on. For example, section 31 of the Associations Incorporations Act 2009 in NSW imposes a fine of up to $6600 for non-disclosure of an interest by a committee member.

If your school is an incorporated association and a registered charity, you must abide by both the ACNC Standards as well as the corresponding association incorporation act, unless your school is in South Australia or Tasmania. In those two lucky states, the legislation applying to incorporated associations was changed this year to align their governance standards with those of the ACNC Standards.

School registration requirements

Unsurprisingly, school registration requirements in most States and Territories explicitly require a school's board or governing authority to manage all conflicts of interest that may arise. For example, in Western Australia, under the Department of Education’s Registration Standards and Requirements 2014, a school must describe the ways in which the governing body operates including how it manages a conflict of interest and its code of conduct.

Similarly, in New South Wales, under the Registered and Accredited Individual Non-government Schools (NSW) Manual, each "responsible person" for a non-government school must avoid situations in which his or her personal interests or the interests of a relative or close associate may conflict either directly or indirectly with a decision made by the governing body, whether the conflict is actual, perceived or potential. The same obligation applies to to a school that is a member of a system of schools in NSW. The wording of the Manual reflects the ACNC Standards, and the effect is that a wide array of people at your school with a broad range of interests are caught by this requirement (See our earlier article on related party transactions in NSW).

How does your school manage conflict?

The existence of multi-layered obligations under Federal and State law and school registration guidelines relating to the management of conflicts of interest indicates the importance placed on transparent and ethical management. It is clear that those individuals in positions of authority must act and be seen to be acting, in the best interest of the school. As conflicts of interest are likely to be cropping up with monotonous regularity with most school boards, it is critical that they implement clear policies and procedures to manage those conflicts when they arise.

CompliSpace will be hosting a Webinar on the topic of Conflicts of interest in schools: How to manage the unmanageable, on 9 August 2016 at 10am Eastern Daylight Savings Time. The Webinar will be presented by Svetlana Pozydajew, Business Manager, CompliSpace. The Webinar will cover common conflict of interest issues and we welcome the submission of any conflict of interest related questions you may have here. For more information and to reserve your webinar seat: here.

Share this
About the Author

Ideagen CompliSpace

Resources you may like

Article
Sextortion: A Growing Concern for Schools

Trigger warning: This article references sexual assault, child abuse, and suicide.

Read More
Article
Changes to the Australian Consumer Law – What Schools Need to Know

Many schools rely on standard form contracts to avoid the time and cost of drafting and negotiating...

Read More
Article
The SG Wrap: February 29, 2024

The information in the SG Wrap is aggregated from other news sources to provide you with news that...

Read More

Want School Governance delivered to your inbox weekly?

Sign up today!
Subscribe