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The Truth About Conflict of Interest

Every board member’s nightmare is to pick up the morning paper and read that his organization is implicated in some sort of scandal. Often such scandals involve the dreaded conflict of interest, giving both the nonprofit and conflict of interest itself a bad name. Conflict of interest, however, is a situation that can be effectively managed on a board if all board members understand what their responsibilities are.

What is conflict of interest?

A conflict of interest is simply a situation in which an individual has two separate and competing interests and it is unclear which interest will win out if it comes down to it. Another term we can use for this, which is equally descriptive but without the negative connotation is duality of interest. An example of a conflict of interest is a board member whose brother runs a print shop that could potentially print materials for the organization.

Is it necessarily bad?

No. As long as board members disclose their dual interests to the full board, a conflict of interest doesn’t have to be problematic.

In the example of the board member whose brother is a printer, it is fine for the brother’s shop to print materials for the organization, as long as 1) the board knows that the printer is the board member’s brother, 2) the job is bid out competitively so there is evidence that the printer’s price and quality are equal to or better than the competition, and the process is properly documented, and 3) there is no expectation from the printer that the organization will guarantee work or use him in the future without competitive bids.

How can you detect it?

Ask. When anyone joins the board or staff, require that the individual completes a duality of interest form that lists any individual or organization that the nonprofit might be dealing with and the individual has an outside relationship with. Better yet, discuss possible conflicts during the recruitment process. Conflicts need not prevent a board member from joining, but they should be transparent from the start. A new board member must sign a pledge that she will disclose any conflicts of interest and keep the best interests of the organization in mind as long as she serves on the board.

From time-to-time, a  director might notice an agenda item which might represent a conflict. In such cases, the board member should declare the conflict before there is any discussion of the item. In the absence of any policy to deal with this, the director should leave the meeting for the duration of the discussion. The secretary should ensure that this is recorded in the minutes.

How can you avoid it?

If something you’re considering isn’t actually illegal, a breach of bylaws, or a damaging conflict, but it seems improper to someone from the outside then your organization’s reputation could still be damaged. Even the perception of impropriety can harm an organization’s image. Create policies, enforce disclosure, conduct business transactions at arm’s length, and maintain a code of ethics that everyone in the organization abides by.

What if it happens?

Own up to it. By now we’ve all seen enough scandals in business, government, and nonprofits to know that it only gets worse when you lie about it (didn’t your mother teach you that?). If the media or any outsider finds out that your organization did something wrong because of a conflict of interest, acknowledge the mistake, and fix it as best you can. Implement the necessary policies and procedures to ensure that it doesn’t happen again, and then move on.

About the Contributor: Berit Lakey

Over the past dozen years, Berit Lakey’s consulting practice has focused on issues concerned with governance of nonprofit organizations.  However, during her professional career she has also filled such diverse roles as teacher, trainer, staff administrator, executive director, and board member. Through her experience in consulting, training, communications and nonprofit management, she has acquired unique insights into the complex nature of nonprofit organizations and their boards. Among her clients have been the boards of health and human services organizations, as well as arts organizations, foundations, credit unions, religious organizations and associations. She has also served as an adjunct assistant professor in the graduate school at the University of Maryland University College.

During her six years as a senior consultant on the staff of BoardSource (previously known as National Center for Nonprofit Boards), the premier resource for practical information, tools, training, and leadership development for board members of nonprofit organizations worldwide, she provided individualized board consulting and training, conducted workshops for board members and board consultants, and took special responsibilities for the BoardSource board self-assessment program. She continues to serve BoardSource clients in addition to her own.

In her work with organizational leaders, she seeks to assist them in clarifying the basic purposes and values of the organization, in building consensus around a vision for the future, and guiding them as they face the many challenges presented by an ever-changing environment and competing priorities.

Berit Lakey holds a master’s degree in organizational development and a doctorate in human and organizational systems from the Fielding Graduate University in Santa Barbara, Calif.

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