Avoiding Conflicts of Interest on a Nonprofit Board
Those who serve on a nonprofit board of directors agree to put the interests of the organization and its shareholders ahead of their own in order to avoid inappropriate gains – both personally and professionally. However, board members are often involved in a number of other personal and business activities. This can make it easy for a potential conflict of interest to arise, resulting in penalties for the affected board director, the organization, or both.
Nonprofit boards that are proactive in raising awareness about conflicts are in a better position to recognize potential issues before they happen and take the appropriate action. Best practices that most nonprofit organizations will find practical for avoiding conflicts of interest include:
- Cultivating a culture of disclosure. When considering new board members, require them to complete a questionnaire disclosing their personal and professional obligations. This can include relevant information such as their place of employment, financial interests, and what other boards they or their immediate family members serve on. Current members should submit an updated questionnaire annually.
- Getting (and keeping) the conversation going. Conflict of interest concerns should be part of your board’s development best practices and openly discussed at annual board meetings. For example, talk about what does and what doesn’t constitute a conflict of interest and provide time for questions. Be sure that board minutes are properly documented.
- Establishing a governing team. The likelihood of a conflict of interest can be reduced by establishing a governing team that knows how to recognize and properly address potential conflict of interest issues before they become a problem. For example, organizations can designate a point person, such as a Board Committee Chair, who is tasked with governing everything relating to the prevention of conflicts of interest. Specific duties can include documentation and reporting, organizing training sessions, and ensuring that policies and provisions regarding conflicts are regularly updated.
Finally, it’s important to note that most nonprofit entities are required to file Form 990 with the IRS. This form not only requires the disclosure of where revenue for the year was generated, but also whether the nonprofit has a written policy on conflicts of interest and how it manages and determines members with conflicts. According to The National Council of Nonprofits, a conflict-of-interest policy is one of the most important documents for nonprofits to develop because it encourages them to put the policy in writing and to update it regularly.
For more information on developing a conflict-of-interest policy, visit the National Council of Nonprofits.