Trustee conflicts

A conflict of interest occurs when a trustee has a duty to act in the best interests of a particular party but also has either a personal interest or a duty to act in the best interests of another party. If not managed properly, conflicts of interest can lead to inappropriate or even invalid decisions.

Let’s consider a couple of examples:

• It might be difficult for a trustee who is senior in an employer’s finance department to make an impartial decision relating to the length of a recovery plan. 
• A trustee who has not yet retired has an obvious personal interest in relation to setting commutation factors.

Trustees who are also directors of the sponsoring employer have additional responsibilities under the Companies Act 2006. This should be discussed with legal advisers.

Whilst all conflicts should be noted, the majority can be easily managed. It should be remembered that in a lot of cases it is the “perceived” conflict that needs to be considered.

The Pension Regulator’s view is that conflicts of interest should be “embraced” rather than ignored. Its view is that the following three stage process should be used to deal with them:

1. Identification

2. Monitoring 

3. Managing

Our view is that the chairman and/or scheme secretary should consider potential conflicts as part of their preparation for a meeting. This means they can speak to the relevant people ahead of the meeting and discuss how best to proceed.

The Regulator has published guidance on conflicts of interest which contains a number of important principles. By way of example, it believes that trustees should:

• understand the importance of conflicts of interest
• document their conflicts of interest policy and keep the policy under review
• identify and consider conflicts that have arisen or may arise in future
• put conflicts of interest on the agenda for all board meetings
• declare and minute all conflicts of interest arising during a decision-making process
• maintain a register of trustees’ interests
• record the actions taken to manage or avoid conflicts of interest
• consider whether to obtain legal advice if the conflict is non-trivial, and
• ensure that their advisers are able to provide independent advice.

If a conflict is identified it can be managed in various different ways. Options include:

• seeking legal advice
• withdrawal from any discussion and the decision-making process
• establishing a sub-committee
• appointing an independent trustee, and 
• the resignation/non-appointment of trustees.  

The most appropriate course of action will vary depending on the situation.

The Bribery Act 2010 formally classes bribery as a statutory offence and failure to prevent bribery can have significant consequences. The Ministry of Justice has produced guidance on the Bribery Act which can be found at www.justice.gov.uk/downloads/legislation/bribery-act-2010-guidance.pdf. Trustees may face little or no risk of bribery but it is important to have adequate procedures in place to prevent bribery and in order to protect them. As a consequence a register of gifts and entertainment provided by advisers and other parties should be maintained.