STRONG POLICIES HELP NOT-FOR-PROFITS AVOID CONFLICTS OF INTEREST

The world has become a more complicated place for corporations and not-for-profit organizations alike.  Now, more than ever, it is important for not-for-profit organizations in particular to develop and insist on high ethical standards for all those who are engaged in operations and financial interests.  Reputation, funding, and legality are all on the line.

One method for avoiding unforeseen issues is for organizations to establish and enforce “conflict of interest” statements for members of the Board of Directors, audit committee members, and employees.  A conflict of interest arises if an individual has competing interests when making decisions affecting the not-for-profit organization.  For example, a board member may own an office building that could potentially lease space to the not-for-profit organization.  A conflict arises between the fiduciary duty to put the interests of the not-for-profit first and the desire to lease the unfilled space and potentially benefit the director.

The organization should consider both real and perceived conflicts when developing a policy to address these types of issues. The Board of Directors should always be aware of potential conflicts.  This can be accomplished through several provisions:

• Multiple bids should be obtained for services and products before a final selection is made to ensure that any transactions with related parties are on arms length terms.
• If an individual has a potential conflict, she/he should be excused from the Board meeting and the ensuing discussion and should not have a vote on the issue.
• If compensation matters are involved, data should be obtained showing comparable information for other individuals in like positions in organizations of a similar type and size.
• All decisions should be included in the minutes of the meeting.

The conflict of interest policy should be read by all Board and committee members and employees when service to the organization starts and then annually thereafter.  A statement should be signed by each person noting that they have reviewed the policy.  The policy itself should also be reviewed and updated each year.

Conflict of interest policies will not safeguard organizations from all legal and ethical concerns, but the policies can provide opportunities to identify and manage problems before they become too complex.  Not-for-profit organizations, like corporate entities, are under more and more scrutiny.  The development and institution of appropriate policies and procedures results in stronger management and stronger organizations better able to serve constituents.