Non-profit board members have a duty to ensure that they are free from conflicts or potential conflicts. But surprisingly, many boards are unprepared when a conflict situation surfaces, even when they have policies in place.
What's more interesting is that many directors don't declare conflicts because they think they are insignificant or irrelevant. My rule of thumb - when in doubt, call it out!
Conflicts of interest put boards and their non-profits at risk by not acting in the best interest of their organization
What Is Considered A Conflict of Interest?
There are three types of conflicts of interest to manage at the board level:
Direct Conflict of Interest
When a board member will gain or lose money or goods personally because of a decision made by the organization.
Indirect Conflict of Interest
When the conflict is one step removed from a board member and the loss or gain would benefit peers, families or friends.
Perceived Conflict of Interest
When someone from outside perceives that a board member can get the organization to make a decision that directly or indirectly benefits that board member.
If a non-profit fails to manage conflicts of interest at the board level, the membership, stakeholders and the public can lose confidence. Conflicts that are not declared can put the non-profit at risk.
Declaring Conflicts of Interest
A good practice for any board is to include an agenda item at each meeting regarding declaration of conflicts. At the beginning of the meeting, the Chair will ask participants if they read the materials and if they have any conflicts to declare. This practice puts conflicts at the top of mind for everyone.
If there are conflicts raised at a meeting, the board member should remove themselves from all discussions and decisions related to the issue or situation - this would be noted in the minutes.
But conflicts don’t just exist at the board table. It is the responsibility of each board member to declare any type of conflict of interest, real or perceived, at any time during their service as a director.
If a member is uncertain if a conflict of interest exists, they should discuss it with the organization’s president or board chair. Remember - when in doubt, call it out!
Declaration and Ongoing Commitment
All non-profits should have a conflict of interest policy which outlines the process for declaring a conflict and procedures for dealing with it. Board members should declare in writing that they will act in compliance. A great practice is for board members to reconfirm their adherence annually by re-signing a conflict of interest form.
Boards can demonstrate even more commitment to making management of conflicts a priority by finding time annually to workshop some relevant case studies. Not only will this help your board to better understand conflicts and how to deal with them, but it will also engage your team in conversation so when the time comes to manage issues, you will be ready!
As always, if you need help with any governance projects, including conflict of interest workshops for your board, don't hesitate to reach out.
Yours in Good Governance,
Heather Terrence, CAE
Pinpoint Governance Group