Sport Law Newsletter

Identifying and Addressing Conflicts of Interest

In sport organizations, the potential for conflicts of interest is high. Sport organizations are often tight-knit communities. Board members might also be coaches, high-performance athletes, parents of athletes or professionals with connections to the sport organization.

In order to preserve the integrity of the organizations and prevent challenges to otherwise valid decisions, it is important that board members be able to identify potential conflicts of interest and know the appropriate process to deal with them.

Identifying a potential Conflict of Interest

A conflict of interest arises when a board member’s interests outside the sport organization (“SO”) could be seen to influence their decision-making. Conflicts of interest exist regardless of the actual motivations and decision-making of the board member. The fact that the board member could be influenced by outside interests is sufficient for a conflict of interest to arise.

It is impossible to list all the outside interests that could give rise to such a conflict. The most common interests involve family members, personal relationships and financial interests.

Being in a position of conflict does not reflect negatively on a board member. However, board members must properly address conflicts when they arise. The critical first step is that board members must be aware of their interests and carefully identify when a decision or action of the SO has the potential to interact with those interests. Once a potential conflict is identified, there is a very simple process for board members to discharge their duty and still be productive and active participants on the SO’s board.

Conflict of Interest Process

When a conflict of interest arises, the board member with the conflict has a duty to:

  1. Disclose the conflict to the board; and
  2. Remove themselves from voting on any decision relating to the subject matter in which they have an outside interest.

If these two steps are taken, the SO can still make a decision that would benefit a board member’s personal interest.  The board member must be transparent about their interest and not attempt to influence the SO’s decision by voting.

Below are some examples of common conflicts of interest which arise in SOs:

  1. Board Member Alex’s daughter is an athlete who is up for selection for the provincial team. Alex is required to disclose that her daughter is up for selection and refrain from any voting in respect of the nominations for that team. Alex should not vote on any changes to selection criteria or on any awards for which her daughter has been nominated.
  2. Board Member Matilda is an accountant. The SO is deciding which accounting firm to retain to perform an audit. The President of the SO has created a list of accounting firms, including Matilda’s firm, and has asked the board to vote on which firm to hire. Matilda must identify that she works for an accounting firm on this list and remove herself from any discussion or voting on this issue.
  3. Board Member Patricia is a coach of a team that is a member of the SO. A misconduct complaint is made to the SO regarding one of her top athletes. Patricia must disclose that this athlete is on her team and must not take part in any decisions, in her capacity as a board member, related to the investigation and resolution of the complaint.

Consequences of Failing to Disclose a Conflict

If a board member fails to disclose a conflict of interest, the decision made or action taken by the SO regarding the subject of the conflict may be challenged and overturned. If the conflict results in a financial benefit for the board member, that member could be ordered to repay funds to the SO.

Conflict of Interest Policies

Board members’ duties regarding conflicts of interest exist regardless of whether or not their SO has a policy addressing conflicts. Having a conflict of interest policy is preferable. An effective policy should include:

  1. A definition of conflict of interest;
  2. A description of the nature of the information that needs to be disclosed by the board member in a conflict position;
  3. Direction as to when and to whom the disclosure needs to be made;
  4. A range of remedies available to the organization to deal with the conflict; and
  5. The penalties for failing to follow the policy.

Conflicts of interest fall on a spectrum. They can be trivial or fundamental; actual or perceived. What is important is that board members identify and disclose all potential situations which could give rise to a conflict. A conflict of interest policy must be sufficiently flexible to address the full range of conflicts that could arise.

This newsletter is produced by Wickwire Holm to keep our clients and friends informed of developments in the law and emerging issues. It is intended for general information purposes only. In preparing and circulating this newsletter, Wickwire Holm is not providing legal or other professional advice. Readers are encouraged to consult their professional advisers before taking any action on the basis of information contained in this newsletter. If you have any questions about any issues raised within this newsletter or a related issue, please contact us at wh@wickwireholm.com or 902.429.4111.