As the world becomes more connected, rules and regulations governing conflicts of interest associated with geographic boundaries start to lose their relevance. Broader definitions and applications of a board member’s duty to a non-profit are required.
This is the view of David O. Renz in an excellent guide on non-profit conflicts of interest on Non-Profit Quarterly. Renz compares the conflict of interest policy of the United States, which is focused narrowly in terms of private benefit and financial gain due to the definition originating from the IRS, with the broader application employed in England and much of Europe which focuses on any conflicting influences a board member may experience while involved with different entities.
You have probably had a sense of this if you have had a person on your board who also serves on the board of another organization that applies to the same funding sources as your organization. Questions may arise in your mind about for which organization are they advocating more strongly and if they are sharing information about resources you have worked hard to research and cultivate.
Often what is involved in the conflict of interest may not be of such clear tangible value. For example, if you own a dance school and also serve on the board of a dance company that draws its members locally. While you may not benefit financially from the situation, you have a greater interest in having students from your own school becoming members of the dance company.
If you are thinking that doesn’t seem like an immense problem, you are right. Renz says one mistake organizations make is treating all conflicts of interest with equal severity. The way to deal with conflicts of interest isn’t always to eliminate any sign of them, but rather to recognize when and where they exist and take steps to prevent them from influencing decisions.
This is an important distinction both in the spirit of internal organizational policy and legal application of conflict of interest statues. It isn’t enough that someone didn’t participate in a vote on decision associated with their conflict of interest, they can’t have been in a position to influence that decision. (For more information on the legal aspects, see the disqualified persons box in the NPQ article)
All the ways in which Renz says a conflict of interest may manifest isn’t addressed here. It is best to read the article to learn about that. What I want to cover is his advice for recognizing and addressing conflicts of interest.
Like pretty much all advice about organizational policy and bylaws, his advice is not to copy other organizations. Specifically in this case, not to base it on the boilerplate policy language suggested by the IRS which many organizations adopt. This will cover you legally, but does nothing to proactively prevent conflicts of interest.
What Renz suggests is the filing of a disclosure of conflict of interest. What he doesn’t explicitly say, but which I believe to be important, is the creation of an organizational culture which recognizes that not all conflicts are equally severe and invalidating. Renz says one of the problems with many existing conflict disclosure policies is that disclosure only occurs once a year and the conflicts tend only to be known to the executive and perhaps the executive committee of the board rather than the entire board membership.
Renz suggests the entire board be made aware of the conflict, be responsible for addressing the conflict with a course of action, and that disclosures be made on an ongoing basis as they arise. This is an approach I think would go toward normalizing disclosures and illustrating the aforementioned situation where not all conflicts are equally problematic.
Renz cites the policy of the organization, Give An Hour as a good example. (footnotes in the NPQ article):
“….directors, officers, and committee members have diverse professional and financial interests”; that these interests “may influence the way Members carry out their responsibilities”; and thus, “to protect the reputation and integrity of the Corporation,” the policy requires that they must “disclose all relationships that may influence the way Members carry out their responsibilities.”13 The board requires that all members disclose their interests annually at the very least. Furthermore, the policy requires that disclosure must go beyond just the annual completion of a form:
Members have a continuing obligation to disclose any potential conflict or duality of interest with respect to any transaction that affects or may affect the Corporation. In other words, notwithstanding the submission of the [attached] Disclosure Form, Members must reveal any potential conflict or duality of interest that arises after the submission of [this] form.14
Each disclosure “must describe the nature of the real, perceived, or potential conflict or duality of interest…and all facts known relating to the subject matter.”15 Following this disclosure, the governing board will review the information and make a determination about the conflict. The policy states, “The existence of a relationship as defined above does not necessarily imply ineligibility to serve, but rather that participation in some matters may be modified or avoided or, in appropriate circumstances, discontinued.”16
To reiterate, this post is only the tip of the iceberg in terms of gaining a better grasp of conflicst of interest and making educated decisions about what conflicts your organization is willing to recognize and accept in achieving its goals. Any decisions made should be the result of considered discussion and research among board members and disinterested advisors.