This article touches on governance, charity law and conflicts.

Good governance

The good management of conflicts of interest is key evidence of a college with good management systems in place.  Good governance has long been considered to demonstrate a robust organisation, and the converse the opposite.  In times of pressure it is equally important for good governance to continue to be at the forefront of the minds of governors to help navigate a clear path.

Definition

A conflict of interest is a situation where the personal interests or loyalties of an individual governor or trustee, or senior college staff member, could influence or affect their decision making.  It need not result in a financial benefit being gained by the individual.  A governor or trustee must not put themselves in a position where personal interests conflict, or appear to conflict, with the interests of the college. 

Charity law

Sixth form colleges run by corporations and academy trusts are exempt charities.  The governors of a corporation or the trustees of an academy trust are trustees for the purposes of charity law.  The trustees of exempt charities have a legal duty to act in the best interests of their organisation and have fiduciary duties, in other words a duty of care to their charity under charity law.  This duty of care includes avoiding, or managing, potential, actual or, indeed potentially perceived, conflicts of interest.

Sector guidance on conflicts of interest

The issue of conflicts of interest is highlighted in all the governance codes appropriate to the college sector: the Charity Governance Code, the UK Corporate Governance Code and the Code of Good Governance for English Colleges.  While a corporation is required by its funding agreement to adopt one of these codes, both corporations and academy trusts must make an annual corporate governance statement.  The adoption of and reporting against a code can therefore be a useful tool in evidencing compliance with good governance principles, including the effective management of conflicts of interest and loyalty.

Further, as organisations in receipt of public money and holders of notable locally based assets, colleges must comply with the accepted principles of public life, being the Nolan principles of selflessness, integrity, objectivity, accountability, openness, honesty and leadership.  Governors or trustees have a duty of care to exercise skill and diligence in the exercise of their duties so that the corporation or academy trust can demonstrate proper authority and accountability.  Failure to manage conflicts of interest is likely to undermine these obligations.

The Charity Commission undertook a review on the subject of conflicts of interest a few years ago and produced some useful guidance.  This makes the distinction between conflicts of interest, where the individual is likely to obtain some financial benefit, and a conflict of loyalty which gives rise to a situation where an individual is unable to act independently and in the best interests of the charity.  Each is best avoided but where conflicts arise, and for colleges often routed in the heart of their community and who encounter overlapping local relationships on a more frequent basis than some, conflicts will need to be managed with care. 

The Code of Good Governance for English Colleges outlines ten principle responsibilities for good governance, including to:

Ensure that effective control and due diligence takes place in relation to all matters including acquisitions, subcontracting and partnership activity.

Ensure that there are organised and clear governance and management structures.

Clearly the adoption and implementation of a clear conflicts of interest framework and associated practices would go towards demonstrating a robust governance strategy and structures.  This framework should cover both internal, for example intra group, as well as external relationships.

When conflicts arise

For any organisation it is inevitable that at some stage a conflict situation will arise.  What is important is how this is then dealt with by the governors or trustees.

Governors or trustees should guard against any situation where they could be perceived to be awarding benefits to themselves, including the award of contracts between the corporation or academy trust and connected parties. 

Examples of areas where conflicts could arise include:

• the supply of goods or services to a corporation or academy trust by a connected party;
• a relationship with a subsidiary company of the corporation or academy trust;
• appointing relatives of governors or trustees or senior staff members to positions within the corporation or academy trust

Connected parties can cover several types of relationship whether family based or relating to business interests.  Any conflicts of interest policy should define clearly what is meant by a connected party.

Policy and Procedure

Trustees should be aware of the accepted standards of managing conflicts of interest as follows:

• Policy

While the principles of avoiding and managing conflicts of interest will be the same for all organisations, the policy will be most helpful if it is bespoke to the corporation or academy trust and, for example, reflects the likely trigger points where a conflict could arise;

• Declarations

There is an obligation on all governors or trustees to keep their organisation updated on whether or not they have any potential conflict.  All governors or trustees should keep their position under review as a matter of course, whether in relation to the general business of the corporation or academy trust, or any subsidiaries, but should also not forget that conflicts could arise in relation to time limited projects and these must also be declared.

• Register of Interests

A corporation should keep a register of corporation members' interest and has a duty to keep this updated. An academy trust is required by the Academies Financial Handbook to maintain an up-to-date register of interests for its members, trustees, local governors and senior employees and publish the register for its members, trustees and local governors on its website.

• Conduct of Meetings

Many will be familiar with the process whereby an individual governor or trustee who is conflicted must not be party to a decision making process which relates to a matter in which he/she is conflicted.  The conflicts of interest policy should make clear, perhaps using a sliding scale mechanism, whether there is scope for a conflicted trustee to make representations to a meeting about a matter on which they are conflicted, if they can be party to a discussion but not vote or not be party at all to any related proceeding.  The appropriateness of each stage will depend on how serious consequences could be arising from the conflict and whether the governing entity is a corporation or academy trust as the Department for Education (DfE) model articles of association for an academy trust require interests to be declared and the trustee to be absent from any discussions and vote.

• Records

Good governance is to keep thorough records, and this includes meeting minutes, conflict registers and declarations.

Conclusion

Managing conflicts of interest must be a key governance priority for all corporations and academy trusts.  Having an effective framework in place to which governors or trustees regularly refer will help to mitigate against potential conflict issues arising and govern how they are addressed when they inevitably do. It will also help avoid the scrutiny of the FE Commissioner and/or Education and Skills Funding Agency (ESFA) and so enable the corporation or academy trust to focus on delivering high quality education for its students.

If you would like to discuss any aspect of this article further, please contact Fiona Wharton or any of the Charities and Social Economy team on 0113 243 6100. You can also keep up to date by following Wrigleys Education team on X The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.