Stay on yours toes about conflict of interest policies
Alyce Lee Stansbury, CFRE, Notes on Nonprofits
I was recently asked for an example of a conflict of interest policy and it made me think it would be a great time to rerun a past column on this topic. Florida nonprofits are required by the Internal Revenue Service and the Florida Department of Agriculture and Consumer Services to have a written conflict of interest policy and review it on an annual basis.
More than just a legal requirement, the policy and accompanying procedure should guide board and staff about how to handle conflicts including what steps to take and how and when board members are notified.
Conflict of interest policies are most widely known as a tool to prevent financial gain to board or staff members through “insider” connections. But there are many other areas where conflicts may arise.
Jan Masaoka, editor of Blue Avocado, wrote a great article about the gray areas of conflict of interest that go beyond financial gain to include personal, professional, and business interests. She refers to these as “conflicts of loyalty” which are unrelated to personal financial gain but can still raise difficult questions.
These include personal relationships between board and staff, married couples serving on the same board, and an employee and their boss serving together on the same board. In each case, the personal or professional relationship may interfere with the board member’s obligation to make decisions in the best interest of the organization.
Examples include voting to approve staff raises when a family member or close friend will benefit, eliminating programs that may result in staff positions being cut, and openly disagreeing with your supervisor or another board member’s spouse while serving on the board.
I agree with Jan who believes it is important to have parents on private school boards, social service clients on the board of providers, and artists on the boards of art councils. However, these twin aspects of benefit and detriment can result in possible conflicts of interest.
For example, parents serving on the board of a private school may feel conflicted about raising tuition to replace the roof and paying more for their child to attend. Board members who receive client services may struggle with the board’s decision to eliminate a program or service that benefits them personally.
When a board member serves simultaneously on multiple boards, conflicts can arise and should be addressed in advance. For example, board members may hear about a competitive grant opportunity that would benefit another nonprofit on which they serve.
They may also by privy to donor lists and know when one nonprofit is courting the largest donor of the other nonprofit. What happens if a board member knows a prospective donor would make a substantial gift to either organization? While these may not be legal conflicts, they are definitely conflicts the board needs to consider before electing someone to the board.
To help manage these conflicts of interest, Jan recommends four safeguards:
1) Establish a conflict of interest policy and require all board member candidates to sign it before they are elected to the board. The policy should be comprehensive and address potential conflicts in personal, financial, professional, and business interests;
2) Disclose the information provided by new board members to everyone on the board. This helps to ensure everyone is aware of a potential conflict rather than the information being known only to the board chair and executive director.
3) Make disclosure a customary practice as new conflicts arise; and
4) Obtain competitive written bids whenever major purchases need to be made. This ensures prices and products are comparable if a board member stands to benefit financially from the decision.
At the heart of this issue is the need to establish an atmosphere within the board of personal integrity and responsibility. Having and abiding by a written conflict of interest policy is the best way to guide board and staff leaders through potential conflicts.
More information and sample policies are available at www.blueavocado.org and www.councilofnonprofits.org/tools-resources/conflicts-of-interest.
Notes on Nonprofits is written and edited by Alyce Lee Stansbury, CFRE, President of Stansbury Consulting and Kelly Otte, MPA, who is on sabbatical. Send your comments and feedback to firstname.lastname@example.org.