Board of Directors affected by personal interests

Members of the Board of Directors (BoD) might illicitly use their influence for personal gain, at the expense of the organisation’s performance.

Risk type: Practice

Risk driver: Internal

DESCRIPTION

In organisations with a BoD, conflicts of interest of BoD members often interfere with the professional operation of the organization and the oversight function of the BoD. BoD members may for example try to influence recruitment or major procurement decisions, pursuing private interests.

By communicating directly with staff members, BoD members may divide employees and management or demand preferential treatment of certain suppliers and customers (e.g. reconnection of households or commercial users that did not pay their bills). Unjustified enrichment of BoD members may occur if they receive bribes or benefits in exchange for certain actions or decisions, or if they inflate the number of meetings they attend and the allowances they are eligible to receive.

RED FLAGS

• Board expenditures represent a high share of operating costs.
• Board members’ lifestyles change – spending patterns or open displays of wealth such as watches and cars do not match their income.
• Board members block or promote certain decisions without sound arguments.
• Relatives and friends of board members are recruited or promoted without obvious qualifications.
• Board members participate in international study tours and conferences without good reason.

KEY GUIDING DOCUMENTS

GIZ, 2012, Good governance in the Kenyan water sector, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)

TARGETED EXAMPLES

Excessive board expenditure in Kenyan utilities¹

Target group: Utilities

Location: Kenya

In comparison with other African countries, board expenditures in many Kenyan utilities go beyond acceptable and justifiable levels. However […] there are significant differences between the utilities in terms of board expenditures […] Excessive board expenditure may, for example, result from an unreasonably high frequency of board meetings.

FULL REFERENCES

1. GIZ, 2012, Good governance in the Kenyan water sector, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)