Regularly review board guidelines in the event of a conflict of interest
Thanks to a loyal reader who has reached out to clarify when a board member has a conflict or the appearance of a conflict of interest, I updated a previous column on this important topic.
Florida nonprofits are required by the Internal Revenue Service and the Department of Agriculture and Consumer Services to have a written conflict of interest policy and to review it annually. More than just a legal requirement, the accompanying policy and procedure should guide the board and staff on how to deal with conflict, including what action to take and how and when board members are informed.
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Nonprofit Quarterly describes four categories of conflicts of interest:
1. Direct financial gain or benefit for the member – This is the most common conflict of interest situation. An example is a board member whose company or employer sells products or services to the nonprofit organization, which causes the member to receive income from the profits. Even if a member provides a product or service at a reduced cost, a conflict of interest still exists and must be disclosed and addressed.
2. Indirect final gain or benefit for the member – This type is often less well understood and appreciated. For example, when a family member of a board member is considered or receives a scholarship.
3. Non-financial gain or benefit for the member – This type may be more difficult to determine because the benefit is indirect. An example would be when a board member or someone related to him or her receives a service from the organization at no cost while everyone else has to pay for the service.
4. Conflict of loyalty – This is sometimes called a “duality of interests”. An example would be when an influencer is on the board of directors of two different nonprofits in a related area of interest, each eligible for a competitive grant from a particular funder. The member’s decision to advocate on behalf of one nonprofit organization or another can make a difference in the organization that receives the grant.
Other examples of conflict of interest include:
- Use information or documents obtained as a member of the board of directors for a private company or for personal purposes.
- Use a list of donors obtained while serving on the board of directors of one nonprofit organization and use it to solicit donors for another nonprofit organization.
- Approve or oversee a bidding process and a family member is one of the bidders.
- Being part of the selection committee and a close friend, family member or employee is a candidate for the position.
- A romantic relationship between the executive director and a junior staff member or between a board member and the executive director.
Here are several ways to increase the board’s understanding of conflicts of interest:
- Make sure all board members know and understand the conflict of interest policy that is reviewed, accepted and signed by board members each year.
- Include a review and discussion of the conflict of interest policy as part of the orientation of new board members.
- Create a culture on the board where conflicts of interest and the appearance of conflict are openly discussed and clearly understood by all board members.
- Disclose potentially conflicting information provided by new board members to all board members rather than to the board chair and CEO.
- Document in the meeting minutes when a conflict of interest situation arises and the actions taken.
- At least once a year, discuss examples and situations to help board members learn to identify and proactively deal with real, perceived, or potential conflicts and duality of interests.
Having, understanding and following a written conflict of interest policy is the best way to guide board and staff leaders through potential conflicts. Further information and sample policies are available from the National Council of Nonprofits, Board Effect, BoardSource and Nonprofit Quarterly.
Notes on Nonprofits is produced by Alyce Lee Stansbury, CFRE, President of Stansbury Consulting and features information and resources, Notes on Nonprofits Vault stories, guest columns, and answers to your questions. Please send your comments and remarks to email@example.com.
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