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Every nonprofit organization needs to have a clear and workable
conflict-of-interest policy.
What is a conflict of interest? Essentially, a conflict of
interest exists with respect to a proposed decision or transaction
if a trustee or staff member (i) is in a position to make or
influence the organization's decision about how to proceed and
(ii) has a personal or financial interest in or other affiliation
with the potential beneficiary of or other third party to a
decision or transaction.
Often, conflicts of interest are not black-and-white, so
conflicts policies also need to cover situations that may create
the appearance of a conflict of interest. The appearance of a
conflict of interest exists if a reasonable person would believe
that participation by a trustee or staff member in a particular
decision or transaction may be impacted by that person's
duality of interests.
Are conflicts of interest wrong? The simple answer is no. In
fact, boards of trustees and staffs of nonprofit organizations are
most often made up of richly experienced individuals who have long
been active in the community, which results in their having a
wealth of experience, knowledge and relationships, any of which may
give rise to conflicts of interest. The approach, therefore, is not
prohibiting conflicts of interest but, rather, adequately and
appropriately addressing situations in which an actual or potential
conflict of interest arises.
Here are the basics:
Conflict-of-interest policies should not be tucked away in a
drawer but should be regularly distributed and discussed at both
the board and staff levels.
Conflict situations need to be fully aired so that the
decision-makers are aware of the circumstances giving rise to the
actual or potential conflict.
The organization should have very clear procedures to ensure
that a trustee or staff member who has a conflict or potential
conflict has adequately disclosed that conflict prior to action
being taken on the matter at hand.
The organization needs to follow a regular, defined
decision-making process that both substantively and procedurally
produces independent judgment and action on the particular matter
under review.
The individual who has a potential conflict of interest should
not participate in the decision-making, other than to respond to
questions, so that the integrity of both the process and the
organization is protected.
There is no absolute mandate that a trustee or staff member who
has a potential conflict "leave the room" whenever a
particular grant or transaction in which he or she may have an
interest is being acted upon. For example, if the board of trustees
is acting by motion to approve an entire docket of grants, without
discussion of any individual grant in which a trustee or staff
member has a conflict, that trustee or staff member need not exit
the meeting room. However, if the particular grant or decision
involving a conflicted trustee or staff member is to be
substantively discussed, the trustee or staff member should not be
present.
Finally, it is important to review the policy frequently to
ensure that it reflects changing circumstances within your
organization and that the constituents who are subject to the
policy understand it.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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