Guidance on Conflicts of interest

Members should remind themselves of the content of this when invited to serve on an investigation

Introduction

1. This guidance applies to reporting panel members and specialist panel members. A conflict of private interest (or duty) and public duty arises where a member has any interest which might influence, or be perceived as being capable of influencing, his or her judgement even unconsciously. While in practice a member's judgement may not be influenced by a direct pecuniary interest, in law such an interest, however small, disqualifies the member from acting. Moreover interests which can in law disqualify a member are not limited to direct pecuniary interests though we and the member concerned may be confident that his or her judgement would not be affected. An example would be a live business relationship with one of the parties, such as a contract to supply goods or service. However, we are not only concerned with the possibility of one of our decisions being challenged in court on the grounds of conflict of interest, embarrassing as such a case would be to the Commission and the member involved. The Commission must be seen to be above suspicion.

2. Given the range of matters which may be referred to the reporting side of the Commission, and the wide range of situations which arise, it has not proved possible to set out rules determining the circumstances in which a member will or will not be appointed to a group or required to step down from a group. Each case must be decided on the facts. The procedure to be adopted by the Commission is therefore that interests which might give rise to a conflict should be disclosed to the Chief Executive, who where necessary will seek legal advice on the matter.

3. Appropriate guidance on the matter has also been issued to Commission staff and consultants.

Requirement to disclose interests

4. Members should disclose to the Chief Executive any interest which might give rise to a conflict when the prospect of their serving on a group dealing with a reference is first raised. Similarly, such interests which emerge during the course of an investigation should be disclosed immediately. Such an interest may, but will not necessarily, result in the member not being appointed to the group (or standing down if already appointed). Examples of the types of interest which should be disclosed are set out below.

Disclosable interests

5. Most commonly a conflict will arise through an existing or recent financial, business, personal or family involvement with (a) a company which is the subject of a reference; (b) a company which is closely involved in a reference e.g. competitor, customer or supplier of a company which is the subject of a reference or, in the case of a merger reference, a competing bidder; or (c) a company the value of whose shares may be affected by the outcome of the investigation, eg a company in the same industry. (The term "company" should be understood to include any company within the same group, a "one-man" business, a partnership, building society etc.)

6. A member should disclose an interest if he or she, his or her spouse/partner, dependent children, or any person whose financial affairs affect the member:
has a shareholding in, or ownership (whether full or partial) of;

7. A member should also disclose an interest if he or she has a close relationship with a person whose affairs may be affected by the reference. In a case where a company which is the subject of a reference is a regulated utility, in addition to disclosing any interest in a company in category (a), (b) or (c) described in paragraph 5, a member should disclose an interest if he or she, or his or her spouse/partner or dependent children, are employed by the relevant regulator, eg OFGEM or OFTEL.

8. A member should disclose an interest where he or she is responsible for the management of investments, where the investments concerned include shares in a company in category (a), (b) or (c) described in paragraph 5.

9. The terms "shareholding" and "shares" should be understood to include:

in each case whatever the value of the holding and whether held as trustee or beneficially (for example under a family trust or a Personal Equity Plan). Holdings in unit trusts, investment trusts, unit linked policies, pension schemes or similar arrangements under which the investor has interests in a large number of enterprises would not normally give rise to a conflict of interest unless any company involved in the arrangements were itself affected by the inquiry. However, if the trust or arrangement specialises in investing in a particular industry which is affected by the reference or if the member believes that there is a real possibility of the value of his/her investment being affected by the outcome of the reference, the interest should be disclosed to the Chief Executive.

10. Share accounts with a building society would not need to be disclosed except, for example, where they entitled the holder to a "perk" in the event of a merger. Similarly, bank accounts would not normally need to be disclosed in a reference involving the bank, though they should be disclosed where a person wishes to obtain or renegotiate a loan or overdraft.

11. A member's interest as an individual consumer (as opposed to as a business customer) would not need to be disclosed in normal circumstances where the value of the goods or services obtained is small, or where most individuals are consumers (e.g. in the case of a monopoly reference of the supply of milk, salt or bread). If, however, the member were in a small group of consumers they should be disclosed. This might be the case if, for example, a member, his or her spouse, or child, were a coeliac and as such required gluten free products which were produced by companies involved in a merger reference. Members should also disclose the fact of their being a customer of a local or regional utility which might be affected by the outcome of a reference.

12. All such interests should be disclosed to the Chief Executive. Members should speak to the Chief Executive (or Director of Resources and Planning) if they have any doubts as to whether or not they have an interest which may give rise to a conflict and should be disclosed.

Action to resolve a conflict of interest

13. In some circumstances it may suffice for an interest which does give rise to a conflict to be disposed of in the period between the public announcement of a reference and the appointment of the group, subject to the approval of the Chairman. This has happened in a number of recent investigations. Moreover, in some circumstances it may be sufficient simply to inform the parties involved in the investigations of the interest (be it a shareholding or other interest). Again this has happened on a number of recent occasions. However, where the interest in question is that of a member, the normal course of action will be for the member to dispose of or otherwise terminate the interest, or, if the member has already been appointed to the group, to resign from the group. Where the interest in question is that of a person within paragraphs 7 and 8 above, other than a member, the normal course of action will also be disposal or termination of the interest, or resignation from the group unless the interest is de minimis. Interests that are de minimis will normally be dealt with by disclosure. An interest will, subject to periodic review, normally be considered to be de minimis where its value at the time that the appointment is made is not greater than £500. Where an interest has been disclosed, members are requested to advise the Chief Executive of material changes in the value of the interest.

14. More substantial interests are, however, likely to preclude a member from being appointed to a group or will require him or her to step down from a group; examples of interests falling into this category which have arisen include:

- A member was formerly the Chairman and Chief Executive of a holding company. The member was also a non-executive director of another company within the group, he held a small shareholding in the holding company and he was in receipt of a company pension. During the course of a merger investigation a submission opposing the merger was received from a company within the same group. The member immediately stepped down from the group dealing with the reference.

- In a similar case, a member was not appointed to a group when she discovered that a company of which she was a non-executive director intended to give evidence during the investigation.

- Two members were not appointed to the group dealing with a utility reference. One was chairman and Managing director of a company which was carrying out work for the company which was the subject of the investigation. The other worked for a company which supplied equipment to that company.

- A member was not appointed to the group dealing with a merger reference because a subsidiary of a company of which he was a board member handled the public relations of one of the companies involved in the merger.

- A member was not appointed to a group because his son was involved in an advisory capacity to a company subject to a reference.

- A member was not appointed to a group because he used to work for the chairman of one of the companies involved in the merger. Another was not appointed because he had once been a close colleague of the Chairman of one of the companies involved.

- A member was not appointed to the group dealing with a monopoly reference because he was on the board of an organisation (not a company) which might have had an interest in the outcome of the investigation.

- A member was not appointed to a group dealing with a utility reference because he sat on the board of another utility company (albeit not involved in the same industry) which might have been affected by the outcome of the investigation.

- A member withdrew from a group when he became aware that a company of which he was non-executive chairman was negotiating for a research contract with one of the companies involved in the merger.

- A member withdrew from a group when he realised that a company of which he was a non-executive director held a shareholding in one of the companies involved in the merger.

Private interests and public duties

15. The principles set out in paragraph 2 above apply throughout an inquiry. Where a member is appointed to a particular group, he should avoid getting into a position where his private interests conflict with his public duties. For example, neither the member nor his firm or partnership should enter into a business relationship with the parties during the course of an investigation.

Insider Dealing

16. Members are reminded that dealing (or encouraging another to deal) in securities while in possession of relevant price-sensitive information acquired through membership of the Commission (or disclosing such information) is potentially a criminal offence under section 52 of the Criminal Justice Act 1993.

31 July 2002