Handling Emotional Conflict of Interest

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By now, probably most co-op boards of directors have a policy on conflicts of interest. For example, when a board member has a financial stake in a company that potentially or actually competes or does business with the co-op, this information is revealed to the board, and the affected board member may be barred from voting on certain matters. The issue is straightforward enough that a board member who works for a co-op vendor, or who owns property the co-op might purchase, is not likely to take offense when the subject of conflict of interest is broached.

But what about emotional conflicts of interest? Ponder the following scenarios, all of which have occurred in co-ops, with some of the identifying details changed.

Scenario 1: The Protective Parent

The board president’s daughter is a co-op employee. After she is denied a raise of the size she had expected, her father begins bringing up concerns at board meetings about the fairness of the pay raise system and staff turnover due to low pay. When the general manager provides a monitoring report on staff compensation, the board president antagonistically questions the validity of the general manager’s interpretation. The other board members know the intensity of the president’s opposition is due to his daughter’s experience, but none of them feels comfortable pointing this out.

Scenario 2: The Ex-Employee’s Revenge

An employee serving on the board reports directly to the general manager. The general manager fires this employee for poor performance halfway through his board term. The ex-employee stays on the board, but now he is motivated by revenge. Outside of board meetings he lobbies his fellow board members to terminate the general manager when her contract comes up for renewal at the end of the year. He cites noncompliance on several financial condition monitoring reports from earlier in the year, although by now the variances have been corrected. But more importantly, he argues to his colleagues, the general manager is “just not a good fit” with the culture of the co-op. And some board members are getting swayed. The general manager does have a rather prickly personality. Other board members can see through the ex-employee’s motivation, but they don’t know how to address his behind-the-scenes maneuvers.

Scenario 3: Pillow Talk

A board member is married to an employee. The general manager’s compensation has been a hot topic among some staff and members who are demanding to find out just how much she gets paid. However, the board has steadfastly maintained that, like all individual employee pay rates, the general manager’s is a confidential personnel matter. In an executive session for the general manager’s annual performance review, the board decides on a pay increase and bonus. Somehow, the next day the word spreads among the employees and from them to certain co-op members about the exact amount of the general manager’s salary, raise, and bonus. The other board members have their suspicions about how this information leaked out, but they shrink from the prospect of accusing the board member married to the employee. And what if she flatly denies she told her spouse?

Scenario 4: The General Manager’s Romance

The general manager is dating the grocery manager, who reports directly to him. Some board members get calls at home from employees, and eventually the board receives a petition asking them to instate a grievance procedure that allows staff to go directly to the board. The current procedure requires employees to bring their concern first to their own manager and then to the general manager. The grocery staff feel they have no recourse because the general manager is dating their supervisor. In his most recent monitoring report on staff treatment, the general manager claimed compliance with the policy to “Provide for a fair and thorough review of any grievance by means of a known procedure that can be used without bias.” The board accepted his interpretation, but that was before they heard through the grapevine that he was dating the grocery manager.

What makes situations like these so difficult to address is the emotional intensity of relationships between lovers, spouses, parents, and children. To even raise the possibility that a fellow board member or manager might be biased due to a special relationship can strain the collegiality of board and management. All too often, the person in the relationship reacts as if his or her personal integrity were under attack.

And when it comes to those we love, we can be amazingly blind. Once, a general manager asked me in bewilderment, “Why don’t the employees feel they can come to me if they’re having a problem with [my girlfriend]?” I’ve heard board members, including presidents, say that the fact that their partner or child is on the co-op staff has absolutely no effect on their decisions as directors. If the person in a relationship denies even the possibility of bias, it’s asking a lot of board members to challenge him or her.

Before suggesting solutions to emotional conflicts of interest, I want to acknowledge all the couples and families who have selflessly served their co-ops through the years, sometimes as founding members. Some have been able to navigate the turbulent waters of relationships between board and staff members without drama. They seem to manage this by maintaining awareness about appearances and taking the initiative to remove themselves from decisions that could call their impartiality into question.

Sweeping prohibitions against spouses, parents, children and domestic partners of employees on the board could deprive a co-op of some dedicated board members. And in any case, proposed bylaws with prohibitions like that might not win member approval.

Board members’ Code of Conduct

Rather than barring persons with conflicts of interest from even serving on the board in the first place, a Code of Conduct provides for disclosure of those potential conflicts to the rest of the board. To quote from Hanover Co-op’s “Board Members’ Code of Conduct”:

When a conflict of interest exists, a Board member must take one of two actions to address the conflict:

  1. The Board member may advise the President…that the Board member has a conflict of interest, and thereafter the Board member must absent herself or himself from all discussions and voting of the Board on any matter related to the conflict of interest.
  2. The Board member may advise the Board that a conflict of interest exists and may ask the Board to waive the conflict and permit the Board member to participate in discussion and voting on the matter. In the second circumstance, the Board member may participate in discussion and voting on the matter only by affirmative vote of the other Board members present and the Board may impose such conditions on the Board member’s participation as the Board deems necessary to assure openness, competitive opportunity, access to inside information and the public perception that the Board is conducting its business fairly and ethically.

Room for discretion

If conflict of interest could be more broadly defined than “a material financial interest,” and if individual board member relationships with spouses, domestic partners, parents, or children on the staff had to be formally declared to the board as a whole, then perhaps fellow board members might feel more empowered to raise the possibility of emotional conflicts of interest in board decisions.

If it became an accepted norm for directors to discuss and vote on whether a fellow board member with close ties to an employee can participate in a decision that affects their loved one, then some of the emotional charge might be taken out of bringing up a potential conflict, and the board member in question might be less likely to feel attacked.

Confidentiality is an appropriate element of a Code of Conduct, as well. But this topic deserves some discussion as part of ongoing board training. Does confidentiality mean that you can’t tell your spouse the exciting news about the location that the co-op is bidding on for its new store? Does it mean that if you come home visibly upset after a board meeting, you can’t vent about it to your life-long partner? What if your spouse or partner is also an employee? By discussing possible scenarios before an actual situation arises that could require confidentiality, board members raise individual awareness and build trust among the directors.

A Code of Conduct for employee directors

While confidentiality can be expected of all directors, some co-ops still choose to bar employee directors from participating in certain types of executive sessions. For example, here are two policies from Brattleboro Food Co-op’s “Board Member Code of Conduct”:

Employee Directors shall not attend or participate in any Executive Sessions which determine the General Manager contract.

Employee Directors may participate in Executive Sessions regarding issues other than the General Manager contract, at the discretion of a majority of non-Employee Directors present and voting.

But what of the case of a terminated employee serving on the board? When members vote for an employee candidate in a board election, we can’t expect them to consider that down the road the employee might be disciplined or even fired. An additional Code of Conduct for employee directors could address such situations. Here is a sample:

  1. A board member who is also a paid employee is responsible to the membership as a whole and not a board representative of staff.
  2. A board member who is also a paid employee has attendant responsibilities to adhere to the code of conduct policy at all times, including in the work environment.
  3. If the board member who is also a paid employee becomes subject to employee performance concerns such as written warnings or probationary status due to substandard performance of his/her duties at the co-op, the board president has the discretion to require that the board member take a leave of absence from the board until his/her performance improves and s/he is no longer subject to said performance concerns.
  4. If a board member who is also a paid employee terminates paid employment at the Co-op for any reason, the board member will resign from the Board effective the date employment at the Co-op terminates.

Of course, it is much easier to create policies like these in the abstract than to hammer them out in the heat of a current situation.

General manager relationships

Many companies, including some co-ops, have personnel policies that prohibit spouses, relatives, and domestic partners from supervising each other. Typically with such policies, if relationships form between a supervisor and her or his direct report, a full disclosure must be made to management and the parties reassigned so that one no longer supervises the other.

If your co-op has such a policy in its personnel policy manual, that policy applies to the general manager—unless explicitly stated otherwise in the policy manual or in a general manager’s contract. But if the general manager enters into a relationship with a direct report, to whom does she or he make disclosure? The board president? And to whom is the general manager accountable for reassigning her or his partner to the supervision of another manager?

Boards have the option of clarifying their intent by including a policy in the “Executive Limitations.” For example, here is one from Outpost Co-op: The general manager shall minimize the appearance of and actual conflicts of interest and shall not directly supervise or manage the work of any person who is a spouse, partner, immediate family member, or person with whom a romantic or close familial relationship exists.

As with an employee director Code of Conduct, it is less controversial to adopt an executive limitation policy on general manager relationships with staff before there is any such relationship “on the table.”

In fact, the time to address all the possible emotional conflicts of interest is now—before your co-op becomes embroiled in the next one.

Thanks to Mark Goehring, Bill Gessner, and John Mabbott, who contributed their insights to this article.

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Carolee Colter is a consultant to cooperatives and community-based organizations (250/505-5166 or [email protected]).

See other articles from this issue: #130 May - June - 2007