Conflict of Interest

A policy governing conflicts of interests is perhaps the most important policy a nonprofit board can adopt. To have the most impact, the policy should be in writing and the board (and staff) should review the policy regularly. Often people are unaware that their activities are in conflict with the best interests of the nonprofit so a goal for many organizations is to simply raise awareness and cultivate a “culture of candor.” It is helpful to take time at a board meeting annually to discuss the types of situations that could result in a conflict between the best interests of the nonprofit – and the self-interest of a staff member or board member.

A conflict of interest policy should (a) require those with a conflict (or who think they may have a conflict) to disclose the conflict/potential conflict, and (b) prohibit interested board members from voting on any matter that gives rise to a conflict between their personal interests and the nonprofit’s interests.  Beyond those two basics, it is helpful for each nonprofit to determine how conflicts at the board and staff level will be managed. Keep in mind that the revised 990 asks not only about whether the nonprofit has a written conflict of interest policy, but also about the process that a nonprofit uses to manage conflicts as well as how the nonprofit determines whether board members have a conflict of interest.

Tips

• Minutes of board meetings should reflect when a board member discloses that s/he has a conflict of interests and how the conflict was managed, such as that there was a discussion on the matter without the board member in the room, and that a vote was taken but that the “interested” board member abstained (board members with a conflict are “interested” – board members without a conflict are “disinterested”). 
• A process used by many nonprofits to find out whether any board member (or staff member) has a conflict of interests, is to circulate an annual “conflict disclosure questionnaire” that asks board and staff members to disclose existing conflicts and reminds them to disclose any that may evolve in the future.

Tools

• View this Sample Conflict of Interest Policy and Annual Statement for nonprofit board members and committee chairs from the Montana Nonprofit Association. The policy includes a description of the process used every year for board members to review the policy and disclose any conflicts.
• To help your organization with an annual disclosure process, the Council of Nonprofits has developed this Basic Conflict Questionnaire for Board members.
• Review this memo for guidance on conflict of interest policies and a sample conflict of interest policy from the Public Counsel Law Center.

Additional Resources

• Sample bylaw provisions from Hurwit & Associates and more bylaws resources from Grantspace.
• Sample conflict of interest policy from the IRS, included in the instructions to the Form 990 (drafted for a health care organization).
• Conflicts can be nuanced and have more to do with a “duality of interests” than a financial conflict. Read about a 3-dimensional view of conflicts from Blue Avocado.
• Conflicts that are not managed can result in penalties to the person who benefits and to the organization. (IRS information on intermediate sanctions and inurement/private benefit.)