Conflict of Interest Policies Crucial for Non-Profits
Printer-friendly versionby Jeffrey J. Fanger
The non-profit world is changing. The IRS, federal, state and local governments are all taking a closer look at the operation, management and actions of non-profit corporations. One of the best ways to protect your non-profit organization is by adopting and implementing a conflict of interest policy. Conflict of interest policies provide a way to address the inevitable issues that arise between board members, staff and outside interests. Many non-profits believe that their board members can never provide services or be paid for providing services to the non-profit organization. While this may be true in very specific contractual relationships with government entities, generally speaking board members are permitted to contract with their non-profit organizations. However, such a relationship may not be in the non-profit's best interest. A good conflict of interest policy will help a non-profit organization balance the issues of fair market value, independent judgment and faithfulness to the non-profit corporate entity and mission. At a minimum, a board's non-profit policy should establish a process by which independent board members review and determine whether or not a contract with a board member is in the organization's interest. Not only should interested board member(s) abstain from voting, but they should not be involved in any of the discussions or analysis. Care also should be taken to ensure that alternative and competitive bids are considered and that non-interested board members are fully informed of all options and costs related to the contract. A good conflict of interest policy also should address gifts, honorarium, and other things of value given to staff and board members. While it may be appropriate for a staff member to accept holiday cookies from a client, due to the nominal value and unlikely persuasive effect such "traditional" gifts have, the same would not be true of an all-expense-paid vacation. The problem many organizations run into is where to draw the line between benign tokens of appreciation and gifts that could raise concern. Some organizations ban all gifts, but this can have the unfortunate effect of offending customers and clients who do not understand why a plate of cookies is refused. A well-considered conflict of interest policy can help avoid these types of issues. In addition to addressing gifts, a good conflict policy should address business opportunities, intellectual property, trade secret and confidentiality issues, and it should spell out what will happen if the policy is violated. The policy also should set forth a system for evaluating and approving conflicts. This usually requires staff conflicts to be reviewed by the executive director and Board, and executive director conflicts to be reviewed by the organization's audit or finance committee. Taking the time now to review and update your conflict of interest policy can protect your organization from future problems and better prepare you for the likely coming changes in non-profit oversight.
Ohio State Bar Association, Fine Print, Fall 2005