Conflict of interest: not always clear-cut

A well-connected businesswoman sits on two nonprofit Boards.  Her best friend is a local philanthropist. At lunch one day, the friend asks which nonprofit she’d recommend for a donation.

Another nonprofit’s Board member has a daughter in the organization’s after-school music program. The program has poor attendance and is losing money, plus there are other organizations in town with bigger, more-established programs. The Board has to vote on whether or not to close the program.

Should a nonprofit put its reserve in a bank where the Chair is President?

Is it OK to hire a highly qualified candidate who is married to the CEO’s first cousin?

Can a Board member legitimately throw her hat into the ring for the Interim Executive Director position?

We all know when we see certain kinds of conflicts of interest (COI), like a Board member paid as a consultant, or the Executive Director hiring her husband. These are the obvious, glaring, double-dealing circumstances that at best undermine effectiveness and lead to gossip, and at worst make the headlines and send people to jail.

But most COI scenarios are subtler and more complex. In many cases COI issues arise despite all parties having the best interests of the organization in mind. These can be unforeseen, and not addressed in the organization’s COI policy, and very difficult to resolve.

How can your nonprofit prevent even hazy COI situations that can put the organization, and its staff and clients, at risk?

First of all, if you don’t have a COI policy, you need one. Immediately. At a minimum, the policy should include requirements that 1) Board members sign disclosure forms that identify potential COI on an annual basis; and 2) those with potential COI be excluded from all discussion and voting concerning financial relationships with their affiliate business or interest.

COI policies are not one-size-fits-all. We’ve compiled a list of online sources for templates to help create and refine COI policies.

In addition to having a policy, there are specific ways that nonprofits can create procedures for openness that will help avoid COI. Board Chairs should regularly remind members to consider whether they may have a COI before discussions about financial transactions or organizational partnerships.  Also, Boards should be sure to get multiple bids on any product or service that they are considering purchasing from a member’s company (or a Board or staff spouse’s company, etc.) Finally, there are many sources for legal advice and other expertise that can help your organization sort out potential conflicts. Don’t hesitate to call on trusted experts for support.

Once written policies and procedures are in place, consider the culture of your organization—attitudes, communication habits, emphasis on personal integrity. Just because Board members sign a form each year doesn’t mean you’re in the clear. Many potential conflicts are subtle and unexpected. Modeling and promoting openness and fairness is a key responsibility of leadership and a necessary tool for everyday life in a nonprofit.

To inform ongoing research and program development, the Alliance would like to hear from you about your experiences with COI. Have you seen or been part of a COI scenario? Did it resolve, and if so, how? Rest assured that any information you provide will be held in strict confidence. Please email info@npexcellence.org with your thoughts and experiences, and thank you in advance for sharing.

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