Too often nonprofits and ministries realize they do not have a conflict of interest policy in place until the exact moment they find themselves in the midst of an ugly conflict. Let’s face it, for community organizations, conflicts are going to happen….the organization serves the community, staff are connected to others in the community and board members live and work in the community as well. Conflict is inevitable. But, the way it is handled says everything about the integrity of the organization and its leadership.
While we are all so interconnected, it is important for board members and key staff to recognize when conflicts “pop up” so that the issue at hand does not interfere with the legal and fiduciary responsibilities they have. When serving on the board, board members must act in the best interests and in furthering the interests of the organization. However, sometimes that is easier said that done.
It is for this reason that a conflict of interest policy is essential, so that every board member recognizes and is aware of the potential before it arises.
According to BoardSource, a conflict of interest exists when a board member, officer or key employee has a personal interest that is in conflict with the interests of the organization, such that he or she may be influenced by this personal interest when making a decision for the organization.
A conflict of interest policy also helps to assure that the organization is operating in a way that is consistent with the requirements of the IRS. According to tax laws, nonprofit organizations must be operated with the intended purpose of furthering a tax-exempt, public status. An organization that operates to benefit private individuals is at risk of losing its tax-exempt status.
What does conflict of interest look like?
A conflict of interest exists when the interests or concerns of a board member or key employee are competing with the interests or concerns of the organization. The most common examples of conflict of interest are those where the individual on the “inside” has a financial interest in the decisions or actions of the organization. Some common examples include:
- The organization leases or purchases goods or services from the board member
- The organization offers employment to a family member of the board members
- The organization hires family members of a key staff member
- A board member receives a gift or a favor from another business that wants to do business with the organization
- Because of his or her role with the organization, the board member seeks to receive services or goods provided by the organization at no cost
However, conflicts are not limited to situations involving financial interests. Conflicts may also occur when a board member obtains a benefit or advantage that he or she would not have obtained without a relationship with the organization. Some examples include:
- Seeking preferential treatment for admission into programs or services offered by the organization
- Sharing confidential information learned at a board meeting with others in the community
In questionable situations, the key word is benefit. In other words, would the individual benefit in an inappropriate way from a certain action or decision being made by the organization?
As mentioned above, board members and key staff all have relationships in the community. Thus, conflicts are often unavoidable. And, the fact that a conflict exists does not necessarily mean that the organization should not proceed with the decision being made. Instead, what is important is that the decision is always being made in the best interest of the organization.
We recommend having both a conflict of interest policy and a process for board members and key staff to disclose potential conflicts. Once a potential conflict is disclosed, it is important to have a committee or review board to review the situation to make a decision about whether or not a conflict does exist.
How can we help you? Contact us if you need help.