Nonprofit Conflict of Interest: A 3-Dimensional View
Conventional approaches to classic conflicts of interest. Model policies that address these concerns. Non-financial conflicts of interest common to many nonprofits. Steps an organization can take to handle conflicts of interest and more detailed sample policies.
Most nonprofit discussions about conflicts of interest are similar to those in the for-profit sector: they focus on financial benefit to board members or staff to the detriment of the nonprofit organization. The classic examples: the nonprofit buys something unnecessary or overpriced from a board member’s business, or the nonprofit hires an unqualified, overpaid family member of the executive director.
But nonprofit conflicts of interest are often more subtle, more multi-dimensional, and more unexpected than these classic examples. For instance, what about the board member who also sits on the board of a competitor? Is this a good idea that facilitates collaboration or does it pull that person in two different directions? What about relatives of the executive director who hold important staff positions… but as volunteers? And perhaps least talked about: what about the potential benefit/conflict for a board member who is also a parent/client/beneficiary?
None of these situations fits the classic conflict-of-interest model that is firmly anchored in financial benefit. Such a view tends to be two-dimensional: conflict of interest is either bad, or something to overrule if, for instance, the item is not overpriced or the relative is well-qualified. But since so many nonprofit interactions are non-financial in nature, we need to understand the gray areas beyond simple financial benefit; in other words, we need a three-dimensional look.
First, we’ll briefly recap the conventional approaches to classic conflicts of interest and provide some model policies that address these concerns. Next, we’ll consider some “third dimension” or non-financial conflicts of interest common to many nonprofits. We’ll end with some recommended steps an organization can take to handle conflicts of interest and more detailed sample policies.
Classic conflict of interest
A potential for conflict of interest is said to exist when a person can gain a financial benefit through “insider” connections. For example, if one board member owns a furniture store and another is an insurance broker, these board members could use their influence on the board to have the nonprofit purchase over-priced furniture or choose insurance products that offer higher commissions. Most nonprofit conflict-of-interest policies have the following provisions, both focused on the board:
- Disclosure: All board members write down possible conflicts of interest and submit to the organization annually.
- Exclusion from discussion and vote: If a board member has a potential conflict of interest and the organization is considering a financial relationship (let’s say with an insurance broker who is on the board), that board member is excused from the room for the discussion and vote about whether to work with that broker.
The disclosure-and-exclusion policy works well in many instances, because both the potential benefits and the potential risks are disclosed and the board can make a fully-informed decision either way. One important addition for nonprofits is that often a potential conflict-of-interest situation can’t be foreseen, and as a result, will not be covered in annual disclosure statements. For instance, a board member might be married to someone who is a partner in an intellectual property law firm. For the horse rescue society, this might seem irrelevant…until a candy store opens with the same name and the society needs a trademark attorney.
“Conflict of interest” or “benefit from interest”?
In practice, what makes something a conflict of interest can also end up being a benefit from interest, or a good arrangement for the nonprofit. For instance, the board member who owns a building may reduce the rent for the nonprofit. Or the nonprofit may benefit from working with the law firm of a board member, because that board member will ensure that the firm will do excellent work and will charge fairly or even at a discount.
Community organizations are based in their constituencies, and hold themselves accountable to their constituencies. Accordingly, we believe it’s important to have parents on preschool boards, social service clients on the boards of providers, and artists on the boards of arts councils. But consider the potential conflicts that can arise: In a nonprofit preschool where many of the board members are also parents, these individuals might feel pulled in two directions about whether the preschool should raise tuition in order to replace the roof. And what about the board member/client who utilizes a service of the agency that isn’t used by many other people, and as a result, has a personal stake in the service that the staff is recommending be discontinued?
Such situations are not infrequent in nonprofits. They are important reminders for nonprofit boards to recognize the twin aspects of benefit and detriment that can result from a potential conflict-of-interest situation.
Serving on the boards of two organizations in the same field
An interest and expertise in a particular field — such as disability rights or African American history — understandably leads to some people serving on the boards of two organizations that may be in indirect or even direct competition for funding, prestige, staff, or board members. What happens when both boards on which you serve decide to approach the same individual to join the board? What will you say to that person when she asks for your advice?
Or imagine you are on the boards of two arts organizations: one a chamber orchestra and the other an ethnic dance festival. You have a friend you could ask for a major donation. Which organization should you ask your friend to support? Or suppose that at the board meeting of the orchestra you hear that a local foundation is starting to give arts grants. You know that the dance festival hasn’t heard this news. Should you tell the dance festival about the new grant opportunity?
In addition to competition for funding and for board members, organizations often collaborate with each other which can also put board members in awkward situations. We know two environmental organizations that were developing a joint project. A board member on both knew that in one of those organizations the board was very unhappy with the executive director for over-promising and under-delivering. Should he tell the other organization that the other executive director should not be counted on to follow through on promises made for the joint project?
Conflict of loyalties
Attorney Evelyn Brody usefully describes such situations as ones with “dual loyalty” or “conflict of loyalties” rather than conflicts of interest. She also notes its presence where funders or representatives of government or foundations are on boards: often precisely for the purpose of reporting back to their institutions on what’s going on. These kinds of dual loyalty situations are unrelated to personal financial gain, but nonetheless raise difficult questions. As a result, relying on narrowly-defined financial conflict guidelines may inadvertently send the wrong message: that personal financial gain is the only kind of conflict of interest.
Four simple safeguards
Four simple safeguards can go a long way towards appropriate management of conflicts of interest. First, establish a policy related to conflict of interest which is signed by all board members when they join the board. The statement can be a simple declaration or require detailed information about the board members’ financial interests. Include questions about the board members’ affiliations which are not financially based, such as membership on the boards of other organizations, or membership in professional societies.
Second, rather than keep these statements confidential to the board chair and the executive director (which is a common practice), put the information into the roster of board members. Doing so will encourage others to turn such relationships into benefits for the organization, as well as knowing that the potential for conflict exists in certain circumstances.
Third, establish disclosure as a normal practice. Board members should find it customary for someone to announce, for example, “I have started to date the Clinic Director and, as a result, feel that I must resign from the board.” In another situation a board president might say, “This next agenda item relates to joining a collaboration with other children’s agencies. I’m going to ask board members who are also on one of these other boards to identify themselves and participate in the discussion, but I will excuse them from the room for part of the discussion and for the vote.” Such disclosures should be recorded in the meeting’s minutes.
Fourth, if major purchases (for either goods or services) are involved, obtain competitive written bids to ensure that prices and product are comparable if a board member stands to benefit (financially) from a particular decision. A board member of an environmental organization proposed having her bank offer an affinity card to members. Before making any decisions, the staff invited two other banks to submit proposals for such an arrangement.
Four sample policies
Here are four approaches to conflict of interest policies. Many organizations will find it useful to draw from all four in developing their own:
1. IRS sample policy: appropriate for large organizations with large funds such as hospitals and universities. Includes notes on specific state exceptions. Click here.
2. Independent Sector policy: this policy was developed by this national nonprofit association as a model. Click here to download the policy in pdf format.
3. Silk Model Policy: drawn up by nationally recognized nonprofit attorney Tom Silk and made available to nonprofits through CompassPoint, this policy is meant to apply to both board and staff, and includes “teeth,” as well as a template for a disclosure form. Click here to download the pdf.
4. Informal policy: this informal approach speaks to the spirit more than the documentation of the issue, and may be more appropriate for community nonprofits, especially since conflict-of-interest policies are seldom, if ever, brought to court.
Sample Conflict of Interest Policy
The standard of behavior at the ____ Organization is that all staff, volunteers, and board members scrupulously avoid conflicts of interest between the interests of the ____ Organization on one hand, and personal, professional, and business interests on the other. This includes avoiding potential and actual conflicts of interest, as well as perceptions of conflicts of interest.
I understand that the purposes of this policy are to protect the integrity of the ____ Organization’s decision-making process, to enable our constituencies to have confidence in our integrity, and to protect the integrity and reputations of volunteers, staff, and board members. Upon or before election, hiring, or appointment, I will make a full, written disclosure of interests, relationships, and holdings that could potentially result in a conflict of interest. This written disclosure will be kept on file and I will update it as appropriate.
In the course of meetings or activities, I will disclose any interests in a transaction or decision where I (including my business or other nonprofit affiliations), my family, and/or my significant other, employer, or close associates will receive a benefit or gain. After disclosure, I understand that I will be asked to leave the room for the discussion and will not be permitted to vote on the question.
I understand that this policy is meant to supplement good judgment, and I will respect its spirit as well as its wording.
Signed: Date:
Closing words
Perhaps even more than written policies, board and staff leadership must establish by example and attitude an atmosphere of personal integrity. Some situations may need only a brief, informal comment to maintain that climate (example: “I know it’s only $24 but it’s important to keep our finances straight”). In others, a decision may be delayed because of the need to ensure that the decision has been made in the organization’s best interests. Each of us, by our daily words and actions, contributes to a culture of integrity and responsibility.
See also in Blue Avocado:
- Nonprofit Embezzlement: More Common and More Preventable Than You Think
- Six Things Board Members Should Know About the New 990
About the Author
Jan is a former editor of Blue Avocado, former executive director of CompassPoint Nonprofit Services, and has sat in on dozens of budget discussions as a board member of several nonprofits. With Jeanne Bell and Steve Zimmerman, she co-authored Nonprofit Sustainability: Making Strategic Decisions for Financial Viability, which looks at nonprofit business models.
Articles on Blue Avocado do not provide legal representation or legal advice and should not be used as a substitute for advice or legal counsel. Blue Avocado provides space for the nonprofit sector to express new ideas. Views represented in Blue Avocado do not necessarily express the opinion of the publication or its publisher.
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A very useful article, Jan – many thanks. I always know I will find useful pieces in every BA issue! I would really like to download the two samples referenced here but the links are not working for me. Perhaps they are expired? Can you check to verify? Maybe the problem is on my end. Regards, Sarah
Just double-checked them and they worked for me, Sarah. Try again?
Yes I need to pay some bills I’m very much behind on and rent me a place once I save up
A very useful article, Jan – many thanks. I always know I will find useful pieces in every BA issue! I would really like to download the two samples referenced here but the links are not working for me. Perhaps they are expired? Can you check to verify? Maybe the problem is on my end. Regards, Sarah
This is a fabulous article, Jan! I too find I need to educate many in our sector that COI goes beyond financial, and that COI policies are about managing risks rather than anticipating and preventing all possible conflicts. Your examples are terrific and your list of safeguards is dead-on.
It’s been interesting to me to see that employees on boards is identified as a conflict of interest situation. I haven’t thought of it that way and these comments are making me think more deeply about it.
Most states have laws that keep nonprofit boards from having 50% or more staff (or their relatives) on the board; in some states the percentage is lower than that. Clearly these laws are there to keep boards from voting undue privileges to staff. But I think it’s appropriate that staff on the board are not 100% prohibited. In a nonprofit preschool, for instance, it’s often appropriate and right for one of the teachers to be a board member.
A distinct issue is whether the executive director or CEO should be on the board. I don’t think this should be considered a conflict of interest except with regards to that person’s compensation and other direct matters. The ED can clearly be excused from discussions and votes on his/her salary, disciplinary actions, and so forth. The board can meet without staff (including an ED who is on the board) at any time. As an executive director I always felt I could be MORE effective by not being a member of the board, but that’s a subject for a different article, rather than in the Comments section to an article on conflict of interest.
In short, I think that in general it’s best to keep board roles and staff roles separate by not having staff on the board. In some instances, though, such as a board that feels strongly that its executive be a board member, or having a staff member who can represent a staff viewpoint, or other situations. These should be decided on a case-by-case basis, rather than having a one-size-fits-all rule for all organizations.
Jane, my friend work for a not for profit for 16 years, but 4 years ago she decide to open her own not for profit but hire people to run the business and goes to the business after work and on week-ends and Holidays. She was told that she is in conflict since she works for a not for profit because she might compete with them. Those 2 not for profit do not provide the same services and are not receiving funds from the same founder. She was fired because of that conflict of interest. I was reading your page and decide to send it to her, but since I am new on the board, I would like to have more informations on employees of not for profit having their own not for profit organization. Is there room for collaboration instead of dismissal. Please let us know. Thanks
It’s hard to answer a question about a complex situation without knowing more. The nonprofit can fire your friend without having to "prove" that she is acting against the nonprofit in favor of her "own" nonprofit. It’s possible that they have other reasons for letting her go and are using this as the stated reason. If there are reasonable people acting in good faith on all sides, it sounds as if a discussion about it could result in some kind of agreement about what your friend can and can’t do and still keep her job.
On the other hand, there are probably many factors involved, and most of the time not everyone is reasonable in any situation.
It’s been interesting to me to see that employees on boards is identified as a conflict of interest situation. I haven’t thought of it that way and these comments are making me think more deeply about it.
Most states have laws that keep nonprofit boards from having 50% or more staff (or their relatives) on the board; in some states the percentage is lower than that. Clearly these laws are there to keep boards from voting undue privileges to staff. But I think it’s appropriate that staff on the board are not 100% prohibited. In a nonprofit preschool, for instance, it’s often appropriate and right for one of the teachers to be a board member.
A distinct issue is whether the executive director or CEO should be on the board. I don’t think this should be considered a conflict of interest except with regards to that person’s compensation and other direct matters. The ED can clearly be excused from discussions and votes on his/her salary, disciplinary actions, and so forth. The board can meet without staff (including an ED who is on the board) at any time. As an executive director I always felt I could be MORE effective by not being a member of the board, but that’s a subject for a different article, rather than in the Comments section to an article on conflict of interest.
In short, I think that in general it’s best to keep board roles and staff roles separate by not having staff on the board. In some instances, though, such as a board that feels strongly that its executive be a board member, or having a staff member who can represent a staff viewpoint, or other situations. These should be decided on a case-by-case basis, rather than having a one-size-fits-all rule for all organizations.
Extremely helpful article. I’m a board member of a chapter organization which represents and advances the interests of its members. IRS status is 501(c)(3) not for profit. All board members are either executives or employees of member organizations and are elected by membership. Occasionally issues come before the board for formal vote that have the potential to negatively impact member organizations, for example grant funding decisions or service area decisions. Since chapter board members are employed by the very organizations that could be impacted, this seems like a conflict of interest or dual-loyalty, at a minimum. How are things reconciled when this type of situation occurs?
A community non-profit is a Supporting Organization for a religious non-profit (“Supported Organization”). Chair of each entity becomes ex-officio Board members of the other organization. The Supported Organization requires loyalty oath from all Board members. Chair of the Supporting Organization is in quandary because her loyalty, first and foremost, accrues to the Supporting Organization. Any advice as to 1) the need of an organizational loyalty oath (in the presence of loyalty of country, etc.), and 2) How can the loyalty to the Supported Organization supercede loyaty of the Supporting Organization’s Chair?
Anonymous
Hi Jan.
As always, I have learned something from Blue Avocado! Even the comments have raised another question in my mind.
Taking the comments above a step further, what are the issues involved with a paid Executive Director that is also an officer, specifically Treasurer?
The excellent magazine Governance used the term “Conflict of Loyalties” in their May 2010 issue which I wish I had read before writing this article. I’ve amended the original slightly to include this phrase.
Our UK readers . . . and everyone . . . should be aware of this very thoughtful resource from Civil Society in London: www.civilsociety.co.uk/governance
Jan, thank you for the in-depth article that raised points I had never considered about conflicts of interest. It makes me consider the fine line of accepting possible conflicts in order to retain a hard-to-find board member, or eliminating all conflicts to preserved the integrity of the organization. I like your suggestion of having each board member write an annual disclosure statement to keep everything out in the open, and I will recommend to my current board that such a clause be put into our current and very general conflict of interest policy. Thanks again for your insights! -Natalie Carpenter, vice president, Colorado Housing Inc.
Thanks for such a thoughtful comment, Natalie, and for making my day! Jan
Adherence to a strict policy can prevent an organization from getting new Board members especially in a small community. I prefer “disclosure” and transparency but would not limit a board member’s family to bid on or work for the organization.
A couple of months ago, the non-profit for which my wife is Executive Director, laid off two employees – one being their bookkeeper. It was always the intent to pick up another bookkeeper once the economy improved and their financial status permitted. However, it’s now two months later and funds are still scarce. As a licensed CPA, I’d love to volunteer my services to help catch-up the books and prepare for the annual audit. Before touching the books, I plan to notify the outside auditor of my proposed involvement to ensure that he has no concerns. As I would not be cutting any checks, would be forwarding a list of all journal entries made to the auditor and treasurer, and would not be benefitting financially in any way from the work, what legal conflict of interest issues would arise? Thanks in advance!!
I am a member of an arts organization. I advertise in their publication. They are an American group in name and functionality. They have recently collaborated with an international organization and the founder of the international organization has, I feel, strategically asked leaders and officers of the American organization to be on his advisory board in the name of “artistic advice” and support. The affect that this has on members who are in competition with this international arts organization is that the American organization’s allegiance displayed to potential customers of ours is in my opinion a huge persuasion to use this international organization over another advertising member. It seems that this is a conflict of interest. No one would have a problem with it except other advertisers that are in competition with the international organization. I have approached them about my feelings and they have evaded my questions and concerns. Please advise
I am on a committee to build a playground for kids with special needs. Someone on the board of directors is married to the treasurer. Is this perceived as a conflict of interest?7
How long should conflict of interest statements be retained?
How long should conflict of interest statements be retained?
I could not find the “3. CompassPoint Nonprofit Services policy” on the link. I am interested in policies regarding staff providing services for two different non-profits, who might be considered in competition for the same donors and constituents.
I could not find the “3. CompassPoint Nonprofit Services policy” on the link. I am interested in policies regarding staff providing services for two different non-profits, who might be considered in competition for the same donors and constituents.
My conflict is a little odd and it seems no one is able to answer it. My board is appointed by the city board of alderman, the mayor and the chamber of commerce appoints one person. I was under the impression that being the chamber’s appointment is made by their executive committee, they’re appointment can not BE on the executive committee. I didn’t think it was a huge point to raise but now I have a total of THREE chamber executive board members on my board. The kicker is that we also rent (and share) a building with the chamber which has not been an enjoyable experience for the staff. To me there are huge conflicts but not sure where to get it verified. Any suggestions?
Help please…
I am on the budget committee in my town. The town funds the local chamber of commerce for almost $400k a year (nearly 50% of the chambers budget). The city council gives public money to the chamber and has somehow has managed to decide how and how much money each year (biennium budget) is given to the chamber by saying it is a city council policy issue. The husband of the executive director of the Chamber, the mayor and the live in girlfriend of one of the Board members of the Chamber are ALL city council members. This relationship seems WAY TOO close and the way the city council sets the agenda for how the public money is given to the Chamber seems strange to me at best. I am wondering if these people are legally conflicted setting agenda and policy issues for the chamber as members of the city council.
Thank you.
This is almost certainly not a LEGAL conflict of interest, but it probably is a conflict of loyalties. As a result, there isn't any law you can point to, and you'll have to work it out by talking to everyone.
In some states there are particular laws for nonprofits that have board members appointed by elected officials, so you might want to check with your state attorney general's office about those.
Thank You. I’ll look into that.
If comments are still open, would you please suggest strategies for a very small nonprofit that has laid off most paid staff, but is considering putting a few stipend positions up which may draw from either present or recent board members, because they have the skill sets needed and they will take less compensation than “the going rate.” It is a transition time, until organization can afford to bring in a new ED.
How long should we retain the Conflict of Interest forms signed by our Board members?
As long as they are on your board and at any point you can ask them to sign a new one. Keep it on file and give them a copy. Cover yourself and your organization as much as possible.
Does the IRS 990 dealing with Conflict of Interest take the place the agency’s own conflict of interest policy?
I have served on a Chamber of Commerce Board for over 20 years. I own and operate a commercial printing and marketing company. Over the last 20 years my company have performed services and producted product for the Chamber of Commerce, which I have been paid for. At no time did I give up my right as a business member and owner to service on the Chamber Board. Now the issue of Conflict of Interest has been brought up by another company who does not what my company doing work for the Chamber. If the Chamber continues to have a fair bidding program in place do you see where there may still be a conflict of interest situation? I want to make it clear that I have give many hours and also servce to this Chamber at no fee but if I have a better product, better price and faster service shouldn't I be awarded the job? Whey do I have to give up my rights as a local business owner and active board member to volunteer my experience and time to a Chamber of Commerce? Thank you for any feedback.
The “conflict of loyalties” issue is of great interest, but I do not see the answer I need. Two nonprofits providing similar services, or at the very least, competing for the same donors and funding. An individual is a board member of one and an active volunteer for the other. How can the volunteer activity, which by its very nature can lead to financial donations or support for the organization, be reconciled with the needs of the organization where the person serves on the board of directors? This question was asked in the article, but not really addressed. If a mutually beneficial relationship is not foreseen between the two organizations, should the board member be asked not to volunteer for the other other organization. Is this accomplished with a “loyalty oath”? I did not see a link for a sample loyalty oath or how that might be incorporated in plain english into the conflict of interest policy.
What policies should be put in place when the Executive Director is married to the Board Chair?
The policy is one needs to resign.
Is there any conflict or issues for a married couple to serve in the Board of a nonprofit organization? Please advice Thank you!
As long are both are just board members (and not getting paid in any other capacity), I would make sure there is a full disclosure of their status to other board members as well have a good board conflict-of-interest policy. And if committee membership is the norm, I would have each serve on a different committee.
Our church council is five officers and the chairs of five boards. We have no policy against a non-chair member of a board being the chair of another board. It is currently being proposed to have two non-chair members of one board be chairs of two other boards. That would put three members of one board on the council, and that board would be represented by three voting members. It seems to me that there could be a conflict of loyalty when the council votes on the annual budget, for example, in that the budget for the board that has the three members is included in the annual budget. Is there a recommendation on this issue, or a policy to be put into place?
Can a sitting mayor be on the board of a nonprofit organization?
Can a sitting mayor be on the board of a nonprofit organization?
Yes. In California (and maybe in other states — I don't know) there are special rules IF the mayor is automatically on the board. But if you put John Doe on the board and he's the mayor the rules don't apply. But if the mayor is always on the board — whoever the mayor is at the time — then the Brown Act rules apply.
Isn’t it a conflict of interest to mandate that a mayor on the board of a nonprofit organization, especially when the city makes grants to nonprofits? How would the mayor be able to handle his fiduciary duties to the nonprofit and the city at the same time?
does it constitute a conflict interest when a CEO is also a board member in a non Profit organization?
I am a member of 2 railroad related museums in the Rochester area of NYS. Both museums have been working since 1973 or earlier. We are a not for profit group and certified as an accredited teaching facility by the NYS Board of Regents. We are all volunteers with no paid staff on either group. Both museums deal with transportation history of the Rochester, NY area. Each museum is linked by a 1.5 miles of track. We are open on Sundays only taking passengers for hire. One museum deals with electric interurban, and trolley cars while the other deals with diesel power working towards steam powered locomotives. We meet in the middle were passengers change trains and continue on the other museums. Both museums have a separate board of trustees and in the past there were no problems with people with duel memberships sitting on both boards. For the past 2 years I have been sitting on both boards. Last month one museum passed a policy where no member can sit on both boards stating a "Conflict of Interest". I have never disclosed budget information is any policies where one museum could benefit over the other. Both museums share revenues generated by ticket sales evenly. Either museum does not have a nondisclosure policy stated in the bylaws of their groups. Two weeks ago the museum president with the new trustee policy asked me not to resign as he will try and get this policy reversed on Tuesday (6-18-2014) meeting which I was going to attend. This past Sunday (6-15-2014) I received a note from the museum president that he consulted with museums trustees and I was told not to attend the Tuesday night Trustee meeting stating the new policy of last month and Conflict of Interest and I have not resigned from either group. Now that you have heard this story is what happened legal and can I be stopped from attending the Tuesday night trustee meeting. Please help I can be contacted by email at [removed] Thank you Richard Fischpera
I’m on the Board of Directors for a non-profit. Some of our board members are husband/wife that share one vote. Currently, A husband serves as President. A point of order was brought up during a tie vote. That point of order was that the chair may not vote unless there is a tie.[His wife voted] (On paper we use Robert’s Rules, but its a mess sometimes) The wife insisted she get to vote and we take a 2nd vote, where her husband/President cast the tiebreaker. A MOTION WAS MADE and seconded to allow the wife to vote on the matter by ballot and the husband to break a tie should a tie occur this go round. I objected and said we can’t motion, take and record an illegal vote. (obviously many places like the bylaws and RR and state law and common sense say a chair’s vote cannot be cast in the vote, then cast a second vote to break a tie). My objection was railroaded and the board took a vote to allow the wife to vote and then allow the husband/President to break the tie; thus giving them two votes which is prohibited by our bylaws. I don’t know what I can possibly do at this point that doesn’t involve courts (which I won’t go that far). Any advice?
I am helping a nonprofit religious school where the original executive director (and creator of the school) had the bylaws to give herself a “life appointment” and when she died her son (the lawyer who wrote the original Articles of Incorporation and Bylaws) can serve indefinitely! I have never heard of such a practice. The original BOD have fallen away and are not interested in the school. What can be done? The original director finally “retired” and appointed a new ED, who is my client and who really wants to be operated correctly. Additionally, the retired ED was having funds given to her as “retirement”; not part of any sort of formal retirement plan. Its a mess! Help!
I am helping a nonprofit religious school where the original executive director (and creator of the school) had the bylaws to give herself a “life appointment” and when she died her son (the lawyer who wrote the original Articles of Incorporation and Bylaws) can serve indefinitely! I have never heard of such a practice. The original BOD have fallen away and are not interested in the school. What can be done? The original director finally “retired” and appointed a new ED, who is my client and who really wants to be operated correctly. Additionally, the retired ED was having funds given to her as “retirement”; not part of any sort of formal retirement plan. Its a mess! Help!
If a person was appointed (not elected) as president of the board & later resigned as president, do they automatically maintain a seat on the board?
What do the bylaws say?
Blue Avocado thank you for your website and the great resource of information.
I don’t know if there would be any advice on this situation.
I am part of a small five member board that is trying to run a deceased artists’ archival material and authentication board. After we established the archive and the board, we voted to hire an art historians. We were in negotiations with him to catalogue and manage the materials when the president derailed them by not following through with sending a letter to the historian regarding his contract.
I discovered at the following board meeting that the president, who is an accountant, has as long time clients two of the other board members. These two members are sisters. It seems that at meetings and phone conversations outside of the board the two sisters expressed a change of mind about the art historian, and their accountant, i.e. board president, addressed their concerns by stopping negotiations, which left the historian in a lurch, and the other two board members dumbfounded.
I found it uncomfortable that the president has two clients from his private business on the board. It creates a voting block since he would never vote against his clients’ wishes. It seems to be unethical but there is nothing in the bylaws about this.
Isn’t this an example of a conflict of interest or conflict of loyalties which should be addressed?
I requested casually that he should consider stopping being their accountant, which he verbally agreed to, but after many months, has never addressed. The sisters are clearly happy with the situation since he facilitates their wishes, votes and pursuits. They recently had a meeting which I and the other members couldn’t attend and voted on a series of things. I found it a bit unseemly that he would basically meet with his clients. Shouldn’t these votes be considered illegal since he should have recused himself considering he was voting with his clients?
Is this not that unusual a situation?
How does one address something like this? Thank you for any thoughts.
Check out this past Blue Avocado article: https://www.blueavocado.org/content/conflict-interest-or-conflict-loyalty
We have an awkward situation in our small 501c 3 non-profit.
One of our Chairs insists on using an electronic signature on all her emails that includes an advertisement for her son’s handyman business. This has annoyed ,and angered most everyone, but she absolutely refuses to remove it.
I see other non-profit Bylaws that call for refraining from political and religious endorsements, but nothing that mentions a conflict nfor promoting a business.
This handyman business has nothing to do with our mission.
Do you have a suggestion for language to use that prohibits using our membership list as a contact sheet to solicit business? This is a valued person, except for this stubborn streak. Still, it is causing a problem.
HELP. Any advice will be appreciated.
Simple question, we have a problem , some board members want to use a password to secure the web site. The attorney adviser says we can’t use a password because we are a non-profit. How do we protect the integrity of the site without protecting it?
I’m the treasurer of a non profit that supports urban agriculture and has an entrepreneur program for farmers, they provide incubator space and education for people who are interested in owning and operating their own farm. I own a farm and I’m developing a plan to create an agri-touristic farm with different components including a greenhouse, make/sell ice cream, a playground for kids, a petting zoo, etc.. Before I was elected to the board I disclosed that I owned 12 acres of land and although I wasn’t working the farm I was hoping to in the future. In a recent conversation with the ED and the bookkeeper we discuss my plans for my farm and the ED realized that they had a similar plan for the non profit. After this discovery the bookkeeper accused me to having joined the board, specially as the treasurer (I’m the financial manager in the non profit where I work) to get inside information for the benefit of my farm. I insisted that my plans are very different and my market is totally different than theirs (they serve low income and disadvantage/minority people) while my farm is in a town with a very small number of low income and no minorities, I’m 20 miles away from them and I’m for profit while they are non profit. They insist that there is a conflict of interest and the ED ask me to resigne or she will bring the issue to the board. The board president called an executive session to discuss the accusation and determine that there is no conflict of interest that if anything we could collaborate. How do you see this situation? Should I resign for conflict of interest? What bothers me is that I have been acuse of trying to get inside information when I had no idea they were planning to do the things I’m planing to do in my farm. I feel that if I resign I’m acknowledging their accusation and there is no way I can let anyone treat me this way. What can be the best way to handle this. I’m in a small city where every non profit knows the board of each oder. Thank you for any advise.
I’m the treasurer of a non profit that supports urban agriculture and has an entrepreneur program for farmers, they provide incubator space and education for people who are interested in owning and operating their own farm. I own a farm and I’m developing a plan to create an agri-touristic farm with different components including a greenhouse, make/sell ice cream, a playground for kids, a petting zoo, etc.. Before I was elected to the board I disclosed that I owned 12 acres of land and although I wasn’t working the farm I was hoping to in the future. In a recent conversation with the ED and the bookkeeper we discuss my plans for my farm and the ED realized that they had a similar plan for the non profit. After this discovery the bookkeeper accused me to having joined the board, specially as the treasurer (I’m the financial manager in the non profit where I work) to get inside information for the benefit of my farm. I insisted that my plans are very different and my market is totally different than theirs (they serve low income and disadvantage/minority people) while my farm is in a town with a very small number of low income and no minorities, I’m 20 miles away from them and I’m for profit while they are non profit. They insist that there is a conflict of interest and the ED ask me to resigne or she will bring the issue to the board. The board president called an executive session to discuss the accusation and determine that there is no conflict of interest that if anything we could collaborate. How do you see this situation? Should I resign for conflict of interest? What bothers me is that I have been acuse of trying to get inside information when I had no idea they were planning to do the things I’m planing to do in my farm. I feel that if I resign I’m acknowledging their accusation and there is no way I can let anyone treat me this way. What can be the best way to handle this. I’m in a small city where every non profit knows the board of each oder. Thank you for any advise.
i work for a nonprofit organization as a consultant on their long term growth strategy. They are currently undergoing major transitions in the board and voting in an interim board chair (to replace the Executive Director, who is the defacto sitting chairman in the absence of prior chair). The new interim chair requests the audit be re-done, which is appropriate given past concerns on clarity around financials within the organization. He’s identified a highly qualified individual to do the audit. however, he also wants to vote that individual in as an interim board member. My recommendation is that this person, Ben, do the audit for pay and then be voted in to join board meetings as an expert adivser but not a voting board member during the term of the audit, after which he may join the board as a voting member. Advice? What’s the protocol? Any documents / reference language to help us make the best choice here? THANK YOU.
i work for a nonprofit organization as a consultant on their long term growth strategy. They are currently undergoing major transitions in the board and voting in an interim board chair (to replace the Executive Director, who is the defacto sitting chairman in the absence of prior chair). The new interim chair requests the audit be re-done, which is appropriate given past concerns on clarity around financials within the organization. He’s identified a highly qualified individual to do the audit. however, he also wants to vote that individual in as an interim board member. My recommendation is that this person, Ben, do the audit for pay and then be voted in to join board meetings as an expert adivser but not a voting board member during the term of the audit, after which he may join the board as a voting member. Advice? What’s the protocol? Any documents / reference language to help us make the best choice here? THANK YOU.
I have a unique situation I have been presented with – but I am on a neighborhood association board as just a board member (not currently on executive committee) and then I started a project for a farmers market to which the association is serving as fiscal agent for a grant we received and we are taking donations. The treasurer is resigning and the association really needs a new one, no one seems to want to do it, and I was interested in running but did not know if this is a true conflict of interest or not.
A member of our 501 c 3 non-profit, community service Garden Club has a Chair position .
Her emails have an electronic signature with an advertisement for her son’s business.
Many of our members have personal or family businesses and find this inappropriate and an abuse of our contact sheet.
We’ve spoken to her, but she refuses to take it off .
I can find Bylaws with references to refrain from political and religious statements, but nothing for self promotion of a business.
Is there a policy or Bylaws statement that you can suggest ?
Our non -profit’s mission is clear on what we do, so the unwelcomed “advertisement” has become increasingly annoying as it has nothing to do with any of our projects or fundraising.
Please HELP.
If the president of a 501c3 is a CPA, is it a conflict of interest with his professional clients, to suggest to them his non profit organisation as one for his clients to donate funds to, for tax write offs?
CPA’s are licensed and regulated by their state boards of accountancy. Additionally, there are trade associations, like the American Institute of CPA’s (AICPA) which require its members for follow a Code of Professional Conduct which included fully disclosing conflicts of interest and obtaining consent if a conflict exists. If a CPA or other individual is concerned about whether a conflict exists they should consult the state licensing board or legal counsel for an opinion.
We are not attorneys and are not in a position to opine on the legality of this or any situation.
Thank you so much for this article, which clearly has a lot of staying power. I am on the board of a nonprofit in which a board member would like to apply for the ED position when it next becomes vacant. This seems problematic to me if he remains on the Board–we cannot just exclude him from hiring discussions and decisions. Is this indeed a conflict of interest, as I am thinking? He is a well-liked Board member, so the current consensus is that he could just step out in a piecemeal fashion when necessary.
This is a great question without a black and white answer. While best practices suggest that Board members don't step into the ED role before a period of separation from their board roles (some suggest a year, some three), each individual organization has to look at culture and bylaws to determine if hiring from within the board is practical, and if it represents a conflict of interest to the organization.
Those who have served on the board have an added benefit of knowing the organization, but if you do consider an applicant from your board, it's important to set out clear parameters to manage potential conflicts of interest in advance. That begins with making sure that the board member is removed from all hiring discussions. You might consider having the board member take a short leave of absence from the board during the recruitment period. If he is hired, then he may need to give up his seat on the board, depending on your bylaws and organizational policies and practices. However, some EDs serve on the board of directors as a full participating member. A good first step might be adding it to the agenda for discussion as to how your organization will handle this matter in all cases going forward so you have a set procedure you will follow.
Our bylaws require that 6 of the 11 seats on our board be filled by volunteers of the non-profit. There is no ED; the staff operates as a collective so the board supervises (writes reviews, disciplines, etc.) all full-time staff. The result is that while staff supervises volunteers during the day, the volunteers, in effect, supervise the staff as board members.
None of the volunteers see this as a conflict of interest. We are a community radio station. In addition to volunteers supervising staff, the volunteers on the board also make decisions about programming–generally, the decision that volunteer hosts of shows will continue to host their shows regardless of performance or fundraising. No host has been let go for anything beyond not showing up for their show on a consistent basis.
Of course this board does NO fundraising and has almost no knowledge of how to read a Profit and Loss or other financial documents.
Any suggestions for getting this board to deal with its conflicts of interests? They insist on a literal “financial gain” interpretation.
Woah. That sounds tricky. But this isn't as uncommon as you think, and is part of the growing pains of nonprofit organizations. Having a very clear understanding of board member, volunteer, and staff roles will help alleviate some of this. Growing organizations often face this issue as they gain staff. Board members who previously filled staff roles as volunteer workers now must defer to staff members on day-to-day decisions (even if they are helping out programmatically), but they still maintain control of big vision and strategy decisions. If you put in writing those expectations, you'll help everyone get on the same page as you try to build your organization's capacity.
Our non profit promotes local food and a board member hosts a farmer’s market at her store. We have encouraged her as a board to promote the market on our Facebook page. Is this a conflict of interest? There is no money exchanged, it is simply a cross promotion of like-minded events and the non-profit’s logo is included in the advertisements as well as brochures and info promoted at the event. Should it be disclosed on her company website that she serves on the board in order to keep everything ethical? Is it a conflict of interest for a board member to promote their for profit business on a non profit Facebook page?
First off, what do your bylaws say? Have you created a clear set of rules to assure that board members who may benefit from your nonprofit do so under fair and ethical standards? For example, is your member acting in some way as a sponsor and in exchange gets logo placement and a marketing push? Is it the same logo and marketing that other sponsors at a similar level receive? Making sure that one member isn't benefitting differently assures that you aren't creating conflict of interest. How might you formalize the practice and then use that to garner more support for your organization within the larger community? (For example, asking for donations from all healthy food stores in the area and then creating a guide of options with logo placement).
I am hall coordinator/operations management for a local hall. It has been suggested I should stand down because I also have a hobby supplying flowers/bouquets from our farm and could potentially offer flowers to a potential hall hirer. We also teach dance and used to hire the hall; since now moved our class to a different hall, but it was suggested we could favour the time/day we book for our own class over others. We have declared our interests and said we would do no such thing. The committee determined to have a conflict register and we must abstain from decisions regarding hire rates. I have now been asked to stand down on the request by one member who received one complaint from an opposition florist accusing me of conflict of interest. The florist has an old grudge. I love your article. So well written. I found interest in all of that and realised our treasurer on 7 committees probably has a thousand more times more conflict than I do. Can you tell me if I should stand down? What does everyone think. I’m trying to make a moral decision. I really don’t want to hold a position of trust if people don’t trust me. But I also want to be there to make sure the hall is managed properly and with 40 years business experience and connections in the industry.. again your article made me feel so much better, I can offer many advantages to the committee and to the hall through my experience and connections.
Thankyou for the article and any advice that may be received.
I don’t see anything here or elsewhere that pertains to whether a local judge may serve as an officer (Secretary) on the board of a local not for profit. He has long been a board member, and is willing to step up and serve as secretary, provided I can find no documented evidence that it is a conflict.
Could you advise as to your thoughts or where I might turn for answers? We are in New York State.
Thanks -thoroughly enjoy Blue Avocado and this article.
I am executive director of Idle-Free California, a nonprofit raising awareness of unnecessary vehicle idling – idling when parked. I am being considered for a position as sales representative of a for-profit company to sell their products which are idle reduction technology systems for fleets. I would be employed as an individual apart from my organization. Does this present any legal conflict?
Thanks for the article. Maybe you can help answer a question. I belong to an origination that has a national level and a state level. Do you think it’s a conflict of interest for someone to serve on a national board and on the state board at the same time, knowing that the national board may make decisions that re not in the best interest for the state board.
Are there laws against this?
We’re not aware of any laws against this, and in fact it’s fairly common for most nonprofits with regional affiliates. Of course, it may be challenging to wear different “hats” depending on the meeting or conversation, but many civic leaders have successfully walked that line in the past.
Can a beneficiary of a non profit organization A senior house) sit on the board of trustees?
Absolutely, and in fact it’s a GREAT idea to have people who represent the population you serve sit on your board! This is not at all a conflict of interest, although in the scenario where a discussion is had that’d affect that person, then they should likely recuse themselves from that particular talk.
I have a question that applies to a very unique situation where is medical monopoly has been established by the state. Is it a conflict of interest or against federal law that a non profit hospital has three of the same board of trustee members that are on the board of trustees for a university that has a competing physicians group? In the board minutes of the university they are quoted as saying that the hospital is giving millions in research to universities and that if the university gives the hospital ideals about how to make money the hospital in return can give them the millions in research. And that it shouldn’t be a problem since three of their board members also sent on the board of the hospital. Would this also fall under the category of a kick-back?
Thanks for your question Christy. We can’t give legal advice so definitely suggest you consult a lawyer in your area. In general the concern is around “interested parties”—the nationwide restriction is that only a minority of board members can be involved as employees or owners of a group that works with the nonprofit, which in this case would work both ways. And also, if there are decisions being discussed/made that affect the other organization on whose board they sit, they should recuse themselves from those.
[…] Blue Avocado on Conflict of Interest Policies Heather Curry Frommer Kelly Travis The Responsibility Virus by Roger L. Martin The Alliance for Nevada Nonprofits […]
I have a question as to whether it acceptable, advisable or ethical for a current paid staff member of a non-profit organization, specifically an incorporated church, to also serve on it Board of Deacons or Board of Directors? The Bylaws of this organization do not address this issue.
Being on the staff as a paid employee while also serving on the board is fine, but it is important to recuse yourself from any conversations that affect you, especially around budgeting. To the extent you are on the board specifically because of your staff function (most common for EDs), then you can amend your bylaws to create an “ex officio” position, meaning whoever is in that role automatically has a spot on the board and you transition off whenever you leave the role.
Hello Julie!
Can an executive director of a non-profit 501 c6 hold a full time position in a company that is a subsidiary/sister company of a Board member company? Will a disclosure statement outlining “dual loyalty” considerations for staff maintaining full time positions suffice if all Board members approve?
I am on the board of a community garden. We have a local PTO group that has wanted to host an event in the garden. Due to miscommunication on all sides, we did not realize that it is a large event and we typically charge for events. We are having discussions about this at our board meeting and also discussing what we would charge if anything for this event since it was planned and in place without any cost discussions or agreements. The wife of one of our board members is one of the primary organizers of the event. While both organizations build our local community, we needed to discuss how it would be handled and what we would charge for similar events in the future. Is it a conflict of interest on the part of the board member whose wife is one of the event organizers?
It’s likely a case of the board member not understanding her role/responsibility as a board member. The first thing to do is to review your org’s BOD onboarding process. Community relationships, and how they are handled, should be a part of this process. I also recommend a partnership/event checklist for nonprofit and private sector partners.
I am on the board of a community garden. We have a local PTO group that has wanted to host an event in the garden. Due to miscommunication on all sides, we did not realize that it is a large event and we typically charge for events. We are having discussions about this at our board meeting and also discussing what we would charge if anything for this event since it was planned and in place without any cost discussions or agreements. The wife of one of our board members is one of the primary organizers of the event. While both organizations build our local community, we needed to discuss how it would be handled and what we would charge for similar events in the future. Is it a conflict of interest on the part of the board member whose wife is one of the event organizers?
It’s likely a case of the board member not understanding her role/responsibility as a board member. The first thing to do is to review your org’s BOD onboarding process. Community relationships, and how they are handled, should be a part of this process. I also recommend a partnership/event checklist for nonprofit and private sector partners.
Hi, I was wondering (loaded questions incoming) if the following scenarios are considered conflicts of interest.
1. The Chief of Business Operations is the mother to an employee.
2. The Part time Bookkeeper responsible for part time payroll is the mother of a part time employee.
3. The Chief Fiscal Officer is the mother of an employee.
All mothers are not the immediate or direct supervisor of the child but however, in the cases where actions in regards to pay, time off, employment opportunity and the passing of business information at the dinner table is clearly and obviously present. Also, just because of our chain of command it is always a possibility that in some scenarios the mothers will be in direct supervision of their children in circumstances that have previously happened. Although temporarily, it was still pretty unethical in my opinion but I wanted to know for my own piece of mind.
Was this questions clarified?. Can an employee work under another director supervision and be considered a conflict of interest?
What do you think of an independent school board chair who’s daughter is the assistant head of school? That’s a conflict right?
It could be. For example, if the BOD chair takes part in BOD discussions focused on the evaluation, compensation, etc. of the school’s leadership – yes, that would constitute a COI. If the daughter ever benefits – because – her dad is the chair of the board, there’s a problem. It’s likely this will play into unproductive politics in the school and possibly the board. BOD term limits are key.
Is it a conflict of interest if my sister wants to start a nonprofit using our dead father as the reason and then profit from it to benefit her existing business? She has also asked me and 2 other sisters to be on the board. I don’t trust her to make the right decisions and allocate the money correctly. Do I take the chance and hope that I can help her make the right decisions or do I bow out gracefully because it’s a conflict of interest and no trust?
The article “Nonprofit Conflict of Interest: A 3-Dimensional View” on Blue Avocado explores the topic of conflicts of interest in the nonprofit sector. The article takes a three-dimensional view of conflicts of interest, looking at financial, organizational, and personal dimensions. It explains that conflicts of interest can arise when a nonprofit board member or staff person has an interest that interferes, or appears to interfere, with their obligations to the nonprofit organization. The article goes on to describe the importance of having clear policies and procedures in place to manage conflicts of interest, and provides practical tips for identifying and addressing conflicts in a responsible and ethical manner. The article concludes by emphasizing the importance of maintaining the public’s trust in the nonprofit sector, and the role that effective management of conflicts of interest plays in achieving this goal.
Is it a conflict of interest when the president of the board of directors writes a book, ostensibly about the organization, but in reality is his autobiography, then uses the organization’s money to promote the book and requests the organization’s volunteers to push the presales on social media? The contract signed with the publisher is between the president and the publisher, not the organization, and all proceeds from book sales goes to the president, not the organization. I need an answer quickly, as we are having a board meeting in five days to determine if the president has indeed committed COI and to vote on removing him from the board as a voting member.