Nonprofit Board Member Conflict of Interest Policies: What to Know
Creating your nonprofit’s conflict of interest policy is one of the major responsibilities of your nonprofit board. Once finished, your policy should be written down and should be a living document that is reviewed regularly to see if any changes to the policy are applicable at that time.
Here is what we will cover:
- Nonprofit Conflict of Interest: What is it?
- Nonprofit Conflict of Interest Policies
- Board Member Conflict of Interest
- In Short
Nonprofit Conflict of Interest: What is it?
If you are just starting out with creating a nonprofit organization, or if you’re looking to grow an established nonprofit, you might not fully understand what a board member's conflict of interest is and how one can form totally under the radar.
Conflict of interest is often also referred to as duality of interest. Essentially, it’s when a board member or decision-maker is involved in another organization or process that might cause that person to not think objectively or impartially. These conflicts can come from the members’ professional or personal lives, including other charitable organizations they are involved with.
What Does a Board Member Conflict of Interest Look Like?
Some conflicts of interest can be very obvious, while others are more subtle. Often, board members may not even realize that another facet of their lives is in conflict with your organization.
Eva is ready to build a board member conflict of interest policy for her nonprofit!
Discussing what might be considered a conflict of interest can be hard, even awkward. If you start your organization talking openly about things that might create a conflict, your members will feel more comfortable bringing things up that might be important.
Pro Tip: Try to avoid accusatory language when discussing conflicts of interest. A lot of them are totally accidental, and accusatory language or tone can create friction and defensiveness, slowing down resolution.
Examples of Conflict of Interest in a Nonprofit
One of the most common forms of conflict of interest in a nonprofit is nepotism. Nepotism is the act of favoring family members or friends and giving them jobs and positions that they may not be suitable for.
A resolution for this conflict could be to make sure that other board members who aren’t family interview the prospective new hire and are given full autonomy without pressure to say that the family member is the best candidate, even if he or she isn’t.
Another conflict of interest that might come up in a nonprofit is self-dealing. This is when a person’s position at the nonprofit is directly benefiting another aspect of their life. For example, let’s say someone volunteers at a nonprofit that sells old, used, donated furniture and sells them at a large discount for less fortunate families.
If that person also owns a resale store where she sells furniture, it would be a direct conflict of interest because she could (in theory) take or buy the furniture for cheap and resell them for profit. To avoid this conflict of interest, you could potentially say that members who own for-profit furniture stores can not directly volunteer onsite and could only be a part of fundraisers, or that they can’t buy anything from the organization.
Pro Tip: A volunteer agreement, signed before someone begins volunteering for your organization, is the best place to put regulations like these. A volunteer agreement helps protect your organization and volunteers from accidental or intentional conflicts of interest.
Trish is thinking of all the ways to avoid a conflict of interest on her board!
You could also have a conflict of interest on your hand if one of your board members is, say, a real estate agent or any other kind of professional service provider. If that member uses his or her connections from the nonprofit organization to gain more clients, it could be considered a conflict of interest, especially if he or she is working with the other board members.
Even though it may seem harmless, or even difficult to keep them separate, it is best not to mix your personal life with your professional life.
One final example is giving gifts from, say, a for-profit company owned by a nonprofit board member, to any public official in hopes of swaying their decision in legislation that would directly benefit the organization. This is not only a massive conflict of interest, but depending on the circumstance, it could be illegal as well.
If there is potential legislation in the works that could affect your organization, consider talking to your public official about getting time on his or her schedule to discuss the legislation in question and do a presentation showing the benefits that the law could provide.
Pro Tip: A lot of times, policymakers might be simply unaware of the cause behind your nonprofit. As an expert in your field, sometimes all it takes is showing them your side of the argument.
Nonprofit Conflict of Interest Policies
In order to both avoid conflicts of interest and to set precedents for how to resolve them when they do come up, every nonprofit should have a conflict of interest policy. Having a policy in place prevents the number one most common source of conflicts of interest: misunderstanding.
Why Do I Even Need a Conflict of Interest Policy?
Nonprofits are required to fill out IRS Form 990 which requires you to answer whether or not you have a written policy on conflicts of interest and asks about how any conflicts are handled internally. You are also required to disclose how conflicts of interest are determined.
Even beyond the law, there are several very important reasons for having a conflict of interest policy.
Alex made sure to include a conflict of interest policy in his 990 form!
Even though we want to believe that everyone involved has the best of intentions, it isn't always the case. It is best to be prepared, even from a legal standpoint, for a potential problem. A conflict of interest policy simply sets some parameters and expectations that everyone will be expected to follow, to make it clear what your organization stands for, and what it doesn’t.
Strict policies are occasionally thought of in a negative light, but this isn’t the case at all. A conflict of interest policy is a good thing, and is meant to protect both the organization and its members from IRS sanctions and excess benefit transactions.
Your conflict of interest policy is also a great way to list conflicts that you foresee being an issue, and set the precedent of how they will be handled.
For example, if you run into an issue where someone’s job directly conflicts with an event you're having, you can put in the policy instructions on how that will be handled.
All of your board members and volunteers will sign the policy, so you will have a binding agreement which usually helps with avoiding negative outcomes during conflict.
How to Write a Conflict of Interest Policy
So you're probably wondering where to begin! Before you get started on your conflict of interest policy, it’s highly recommended that you get a lawyer to check out your conflict of interest policy. He or she can make recommendations for items to add or remove, and specific language to tweak.
Emily is excited to learn how to write a policy that fits her organization's values!
Here are some easy steps to drafting a conflict of interest policy:
Purpose. First, you need to state the purpose of your conflict of interest policy. What is the whole purpose of the document?
Affected Parties/Interests. Next, you want to name the parties who will be affected by the conflict of interest policy and disclose what interests you’re protecting such as financial gains or misrepresentation of your mission statement.
Examples of Conflict. Citing some potential examples of conflicts of interest helps to minimize miscommunication. Many conflict of interest policies will end up containing legal-speak, which is often difficult for a layman to understand. By giving examples, everyone can see exactly what you mean. A best practice is to break your board up into committees to identify potential risks per department.
Conflict of Interest Resolution Details. Then, you’ll outline the procedure for how your organization will handle conflicts of interest and what the disciplinary actions will be should a conflict of interest not be disclosed and openly discussed. It might be easiest to create bullet points for each conflict of interest and then another bullet for the resolution.
Consent Form and Signatures. Finally, you’ll end with a consent form and require a signature with a date. This binds your members to follow the guidelines that you’ve decided best benefit your organization. If you would prefer to do this part in person, you can add it to your board meeting agenda template.
After the initial creation of your policy, it’s important to do a yearly review of your organization’s conflict of interest policy. You can discuss what worked and what didn’t in the previous year, and add any additional conflicts that you came across that weren’t named previously. It’s a great idea to refer to the conflict of interest policy as a living document and to let members know they’ll be re-signing every year.
"Culture of Candor"
When talking about conflicts of interest, you will often find the phrase "culture of candor" alongside it. This means creating an environment in which your members and volunteers are willing to openly discuss any potential conflicts, no matter how small. They might even end up reporting something that isn’t actually a conflict, but it’s better to be overly cautious than potentially negligent.
Open discussions and regular meetings with documented notes (also known as meeting minutes) is a great way to get your members to talk freely and gain confidence with each other. The more your members trust you and their team, the more open they will be.
Tristan is glad to have a culture of candor among his board members!
Pro Tip: Prevention is the best cure for conflicts of interest. A strong conflict of interest policy allows conflicts to be solved before they become a problem with more serious consequences.
Board Member Conflict of Interest
How your organization chooses to handle conflicts of interest in regard to board members is more important than you might think. Your volunteers are going to look up to your board members since they are the representatives of your organization in the community. If you aren’t holding your board to the same standard that you’re holding your volunteers, you could be risking both your trustworthiness as an organization and your status as a nonprofit.
A key factor to remember is that any conflict that isn’t resolved puts the individual board member involved in the conflict, as well as the organization itself, at risk of sanctions from the IRS.
Your board members should be extra careful about conflicts of interest. While most conflicts are unintentional, they still put your organization at risk and reflect poorly on the board. This can extend to members and volunteers as well.
Pro Tip: Building the culture of candor is just as important with your board as it is with your staff members or volunteers. It's important for them to feel comfortable with bringing up issues. This not only helps reveal conflicts of interest, but it can also help bring operational problems to your attention sooner.
When starting a nonprofit organization, the number one goal is to give back to society in one way or another. However, even when helping others, you, a board member, or a volunteer could accidentally end up helping themselves. Conflicts of interest happen regularly in both businesses and nonprofits.
Anthony is surprised at how much he learned about conflict of interest policies!
By creating an ironclad conflict of interest policy, not only are you following the IRS’s 990 guidelines, but you are also creating an environment in which you have a clear understanding of what constitutes a conflict of interest as well as how you will handle them as they come up.
Each year, your board should review the conflict of interest policy in a dedicated meeting as part of your board meeting best practices, to see if you need to make any adaptations, discuss what works and what doesn’t, and treat it as a living document. If you set the precedent that the document must be reviewed and signed annually, you are creating a culture that protects the organization’s members and its reputation.
Conflict of interest policies should never be seen as a negative, but should instead be viewed in a positive light by the organization and its board members. Remember, the policy exists to protect your organization and the people it benefits.
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