Toronto Mayor Rob Ford apologized Tuesday, but that should have occurred months (if not years) ago when the letterhead to solicit donations was used. Ford has said he did not benefit from the conflict of interest. This is not only incorrect, but irrelevant. Conflicts of interest are based on perception, not what the recipient thinks.
Ford made several strategic errors in the matter:
1. He did not take advice, legal or otherwise, as to whether he should have participated in the city council debate, the judgment confirms.
This is remarkable. A lawyer could have predicted that this conflict would up putting a stranglehold on Ford’s seat in office. Ford was not even familiar with the above Act, he acknowledged under cross-examination. The integrity commissioner also reported that Ford was in violation of three articles in the Code of Conduct, and that by asking for forgiveness of repaying the donations, could also be breaching the Lobbyists’ Code of Conduct. Justice Hackland found that Ford had a “dismissive and confrontational attitude” towards the Code.
2. Ford did not act on the advice he did get.
He was instructed not to vote on a motion in which he had a pecuniary interest, immediately preceding the vote. Ford refused, and not only spoke to the motion, but also voted on it. This was his fatal flaw. It is entirely correct that Ford ought to have had the opportunity to speak as a matter of procedural fairness, as his lawyers argued, but that was not what the Act read. (The Act really does need to change to enable a person alleged to be in conflict to speak to the issue in an open forum.)
3. Ford stubbornly refused to acknowledge the case against him.
And it was a silly, amateurish case that should have been avoided. Ford should have known better. Soliciting donations using government stationery implies the communication is official and carries credibility on which the requesting party is trading. It opens the door to expectations by lobbyists of favourable treatment resulting from the donation. This, precisely, is what the Code seeks to penalize. The recipients or the cause—or even the monetary amount—is not the issue. Indeed, the more deserving the cause, the greater the likelihood that the conflict will be acute and unrecognized.
The integrity commissioner’s report, which Hackman referred to as “excellent,” says it’s often difficult for someone “who has blurred their roles” to identify the problem at hand. Further, the commissioner says the “validity of the charitable cause is not the point” and shouldn’t justify improper fundraising methods. “People who are in positions of power and influence must make sure their private fundraising does not rely on the metaphorical ‘muscle’ of perceived or actual influence in obtaining donations,” she writes.
This is the heart of the case against Ford. Hackland wrote that he ignored the law, did not secure professional advice, and this amounted to “willful blindness.”
So what is the lesson here for those in the business community, including boards of directors?
Avoid conflicts of interest at all times, but if and when they do occur, the test is perception and process. Every board should have a conflict of interest statement that applies to officers and directors, and to a control person or significant shareholder if applicable. It should cover identification and resolving of the conflict.
If you are in doubt as to whether you have a conflict, you must disclose and cannot influence or take part in a decision, transaction, arrangement or otherwise in which you can be perceived to have an interest, direct or indirect; cannot be seen to be impartial from an outsider point of view; or receive a benefit not shared by other shareholders.
If you do take part in the decision, do not disclose the potential conflict, or attempt to influence the vote, you risk detailed legal scrutiny after the fact. Records of the matter should be kept. A special committee, comprised of only directors who are seen as independent in all manners, may need to be formed. Further, expert independent advice should be sought.
These best practices will protect the board, as well as yourself. They will ensure that you acted prudently, exercised your duty of care, were transparent and acted only in the best of the company and all shareholders.
However, these best practices aside, boards enjoy considerable deference in how they recognize and handle conflicts of interest, or not. There is not even an obligation to have a policy. A good policy would not only address the above, but would also enable an employee or junior executive to tap a leader (chair, CEO, director) anonymously on the shoulder to begin an examination of the issue, bring in the mentioned special committee and retain outside advisers.