Are Mr Marryatt’s two roles compatible?

How Christchurch City Council managed conflicts of interest when it made decisions about insurance cover.

Conflict of roles generally

  1. A conflict of roles or conflict of duties can arise when a person holds office in two entities and those entities are both involved in the same matter. The person will have separate duties to act in the best interests of both entities, which might come into conflict. The incompatibility can be about a general set of issues (for example, if one entity is responsible for regulating the activities of the other), or about a particular issue or transaction involving both entities.
  2. A conflict of duties can create legal risks for the individual as well as for the entities. For example, an individual may be at risk of personal liability for breaching a legal obligation that they owe to the entity. Depending on the nature of the entity and the decision, its decision-making may also be at risk of challenge through judicial review, on the grounds of bias or predetermination. It is also important to consider how the situation might appear to a reasonable outside observer. Even if an individual is confident that they do not have a conflict of duties, there may still be a risk of legal challenge, and public criticism, if there is a reasonable perception of a conflict.
  3. Once a possible conflict of duties has been identified, the affected person and the entities need to assess the scope of the conflict and what steps will be needed to manage it. The usual approach is to identify the particular issues or decisions where the duties will conflict and for the person to stand aside from one role for those issues. The person’s normal responsibilities for those issues would be transferred to a colleague in one entity, and the person would be involved only in the other role. However, sometimes the conflict of duties will be pervasive and affect so many issues that it is not possible for one person to hold both roles.

What is the risk of a conflict of duties arising from Mr Marryatt’s two roles?

  1. At a general level, it appears obvious that Mr Marryatt’s two roles could create a conflict of duties. To assess that risk properly, we sought information on the responsibilities of CCC’s chief executive for insurance matters and on the involvement of directors of Civic Assurance in decisions about individual policies and claims.
  2. CCC makes two main types of decisions about insurance: decisions on who to insure with and decisions about claims under those policies. We have already discussed who is responsible for decisions about insurance cover, and how those decisions have been managed in practice.
  3. CCC told us that claims are made and settled by the staff responsible for the particular area of activity, as part of their normal financial management responsibilities. Staff are guided by the financial limits in the delegations for entering into contracts, and these then determine the monetary value of claims staff are able to settle. This delegation provides:
    …the Council delegate the power of the Council to enter into contracts for the purchase of materials, works and services, subject to the specified amounts in respect of items provided in the Annual Plan of the Council:
    1. Not exceeding $500,000: to be exercised by any two of the Chief Executive, General Manager Corporate Services and General Manager Strategic Development.
    2. Not exceeding $100,000: to the Chief Executive, all General Managers, and Managers of Business Units.
    3. The Art Gallery Director may expend funds available from the Art Gallery Acquisitions Budget to a limit of two-thirds of that budget (current delegation).
  4. CCC told us that, to date, Mr Marryatt has not been involved in any decisions about insurance claims because the value of the claims has fallen within the General Managers’ delegated authority. If the amount exceeds that delegated authority, CCC told us that staff would take the decision to the Council.
  5. The risk of Mr Marryatt having a conflict of duties will arise when a claim affects Civic Assurance, either directly as the insurer or indirectly as a reinsurer. Civic Assurance holds only a small amount of CCC’s insurance cover. LAPP is responsible for most claims arising from the Canterbury earthquakes, but Civic Assurance is still involved as a reinsurer for LAPP.
  6. CCC also told us that a paper was put to the Council on 8 December 2011, seeking staff delegations to accept certain insurance settlements. The Council approved these at its meeting on 15 December 2011. The delegations do not include any delegations to the Chief Executive. In our view, this is a sensible precaution while Mr Marryatt remains a director of Civic Assurance.
  7. Civic Assurance told us that directors are not involved in decisions about who to insure or the terms of that insurance. It also told us that directors are not involved in considering claims because they are dealt with by management. Also, Civic Assurance staff would usually be acting as an intermediary in a chain of insurance and reinsurance arrangements, and would not normally be making substantive decisions about claims.
  8. Civic Assurance told us that no aspect of CCC’s insurance arrangements, either directly with Civic Assurance or through LAPP, has come to the Board for a decision. Although the size and nature of CCC’s earthquake-related claims are significant, the Board’s role has been limited to considering the consequences for the company of the effects of settling the various claims. Civic Assurance directors have had no involvement in deciding what amount should be paid on any of the claims.

How does each entity manage conflicts of interest?

  1. CCC has a conflict of interest policy and procedures for its employees. The content is also included in the staff code of conduct. The policy requires employees to inform their team leader or manager if there is a potential conflict of interest. The team leader or manager then determines whether there is a conflict of interest and consults with the employee about how to manage it. The policy does not explicitly state how a conflict of interest by the chief executive is to be managed. The procedures for identifying and managing conflicts of interest are clearly inappropriate where the employee with the conflict is the chief executive.
  2. CCC also has a policy called “Additional work and conflict of interest policy”. This policy sets out how requests by employees to carry out additional work are considered or managed or where employees advise of an actual or potential conflict of interest. It states that requests to carry out additional work will be approved only where there is no conflict of interest in the employment being requested. It also requires that prior approval be granted by managers to employees. The policy states which managers can approve which level of employee. However, it does not state who is to grant the approval if the employee is the chief executive.
  3. CCC’s conflicts of interest policies do not explicitly address how to manage a conflict of interest of the chief executive. We would expect the same principles that apply to employees would apply to the chief executive, but for the chief executive to be discussing the management of personal conflicts of interest with the Council or a Council subcommittee because there is no relevant manager.
  4. No specific arrangements have been put in place to manage Mr Marryatt’s two roles. In practice, Mr Marryatt and his staff have identified the risk of a conflict of duties arising with decisions about insurance cover, and he has taken no part in those decisions. No issues about claims against insurance cover provided by Civic Assurance have needed the chief executive’s involvement, so there have been no conflicts to manage.
  5. Civic Assurance has a Board Charter that includes a protocol on conflicts of interest. Civic Assurance told us that directors are asked at the start of each meeting whether there have been any changes to their list of declared interests, which is circulated with the agenda papers, and whether there are any items on the agenda that may give rise to a conflict of interest. As a company, its management of conflicts of interest for directors is governed by the relevant provisions of the Companies Act 1993. We have already explained that decisions about individual policies or claims are not made by the Board, so no conflicts of duties have arisen for Mr Marryatt as a director.

Our conclusion on the compatibility of the two roles

  1. Although there is a general possibility of the duties of the two roles coming into conflict, in practice there are very few points where Mr Marryatt is likely to find that his duties as a chief executive of CCC and as a director of Civic Assurance will come into conflict.
  2. The main risk is likely to be when CCC is deciding which company to insure with. As a director of Civic Assurance, Mr Marryatt has a clear conflict of duties in that decision. He has managed the risk by not taking part in those decisions. A similar risk would arise if the chief executive needed to be involved in a decision about a claim when Civic Assurance is the insurance company involved.
  3. CCC staff have advised us that they will recommend that CCC amend the delegations register to put in place clear delegations for decisions about insurance cover. This would clarify who will be responsible for these decisions while Mr Marryatt continues to have a potential conflict of duties. Managing the issue in advance in this way will avoid the risk of decisions being made outside people’s delegated authority, and avoid the legal and other risks that could follow.
  4. Given the nature of the decisions that come to the Board of Civic Assurance, we consider that its existing procedures for managing conflicts of interests are adequate.
  5. We do not consider that the potential conflicts of duties are so pervasive that the two roles are incompatible. In practice, the areas of overlap are few. If CCC puts in place better arrangements for managing Mr Marryatt’s involvement in decisions about insurance cover, we consider that there is no reason that he should not continue in both roles.
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