Conflict of Interest… or Conflict of Loyalty?
Often, conflicts of interest in nonprofits do not involve personal financial gain, but conflict of loyalty.
“Conflict of loyalty” is a useful concept and term that gives us another dimension to work with than simply conflict of interest.
In our legitimate desire to avoid conflicts of interest in nonprofits, we typically make two oddly opposite mistakes:
- We narrow “conflict of interest” to a strict legal definition and focus only on matters that involve personal financial gain, and
- At the same time we are too quick to label any kind of relationship at all as a conflict of interest.
But often, the “conflicts of interest” in nonprofits do not involve personal financial gain. Consider the board member whose commitment to rights for people with disabilities leads her to serve on the boards of two such organizations. At Board A she hears about a new grant opportunity that is opening up at a local foundation. Should she tell Board B about it, or is she obligated not to mention it?
Or what about the deputy director of a nonprofit theater who sits on the board of a battered women’s shelter: two very different fields. He’s just met someone he thinks would be a great board member for either organization. Should he suggest this person to both, or to which one?
In another example, what should we think about a senior staffperson who is married to the executive director… but who works as a volunteer?
Backing up a bit to define conflict of interest
We want to protect our nonprofits from financial conflicts of interest because, to take a simple example, we don’t want a board member who is a stock broker to use his influence to move the nonprofit’s investments towards his brokerage, and then to steer the nonprofit’s investments towards financial products that pay high commissions. Similarly, we don’t want a board member who is married to the executive director to vote on the executive’s pay.
(A “benefit from interest” is another way to describe these types of situations — and they can sometimes work in an organization’s favor, for example, if the stock broker waives his fees for the nonprofit.)
But many of the situations on nonprofit boards are not about direct financial interests. They are about conflicts between loyalties to more than one organization or cause.
We suggest:
Add this or something similar to your conflict of interest policy:
“We acknowledge that conflicts of loyalty sometimes arise that do not involve financial gain. We encourage (but do not require) that relationships and affiliations that might result in a future conflict of loyalty be disclosed, such as serving on other nonprofit boards or for-profit boards. We know that relationships and affiliations have potential for both conflicts of loyalty and collaborative benefits, and open discussion of such situations allows for informed and thoughtful choices.”
See also in Blue Avocado:
Jan Masaoka is publisher of Blue Avocado and the CEO of the California Association of Nonprofits (CalNonprofits). Her books include Best of the Board Cafe (Fieldstone Alliance) and The Nonprofit’s Guide to HR: Managing Employees and Volunteers (Nolo Press). She has caused many conflicts and is full of conflict herself.
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.
19 thoughts on “Conflict of Interest… or Conflict of Loyalty?”
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For our nonprofit in a small community, one of the most frequent actions we take, is to bring forward and acknowledge any interest or loyalty issues, so it is on the table and recorded in the minutes. Then the board member or volunteer can abstain from any related votes. For most issues, the real risk is small town gossip about favoritism or under the table mystery. We ask for identification of any possible conflicts with agenda items to be announced at the beginning of each meeting with a statement similar to the example above. It is printed at the top of all agendas. This has worked well for us so far.
For our nonprofit in a small community, one of the most frequent actions we take, is to bring forward and acknowledge any interest or loyalty issues, so it is on the table and recorded in the minutes. Then the board member or volunteer can abstain from any related votes. For most issues, the real risk is small town gossip about favoritism or under the table mystery. We ask for identification of any possible conflicts with agenda items to be announced at the beginning of each meeting with a statement similar to the example above. It is printed at the top of all agendas. This has worked well for us so far.
Should we also add to the conflict of interest policy-regarding direct political affiliations? Many times board members who are politically connected, join boards to sell their politics and/or profile themselves for political elections. At the same time, conflict of interest also includes those in non profits who work directly for Prime Ministers and Ministers as a side job.
This very useful article led me to “Nonprofit Conflict of Interest: A 3-dimensional View,” (July 6, 2010). That provides an informal policy plus links to three others. #3 is Silk Model Policy. Clicking on that gives me a Compass Point screen that says that the article isn’t found. Nor are any articles by him remaining on the Adler & Colvin firm’s Resources. I’ve found Silk Nonprofit Law’s phone and address — but there seems to be no web address!
Any idea where Silk’s library of free reports, forms, info has gone? It was really valuable.
Thanks for your continuing yeoman’s work to keep Blue Avocado coming and interesting.
Barbara
Barbara, they’re there . . . just a little hard to find. Look in the “governance documents” at the link below, which has Tom Silk’s model bylaws, whistleblower, and other documents as used by CompassPoint. He wrote them both for CompassPoint to adopt and to serve as models for others.
www.compasspoint.org/governance-financial-documents
Here it is:
http://compasspoint.clientrabbit.com/sites/default/files/docs/conflictspolicy.pdf
There are others:
www.compasspoint.org/governance-financial-documents
This very useful article led me to “Nonprofit Conflict of Interest: A 3-dimensional View,” (July 6, 2010). That provides an informal policy plus links to three others. #3 is Silk Model Policy. Clicking on that gives me a Compass Point screen that says that the article isn’t found. Nor are any articles by him remaining on the Adler & Colvin firm’s Resources. I’ve found Silk Nonprofit Law’s phone and address — but there seems to be no web address!
Any idea where Silk’s library of free reports, forms, info has gone? It was really valuable.
Thanks for your continuing yeoman’s work to keep Blue Avocado coming and interesting.
Barbara
This is an excellent suggestion. We just had an instance where the “conflict of loyalty’ led a board member to choose to resign. Perhaps if we had had a similar statement in our Conflict of Interests policy, we might have found an alternative track for the board member to take.
As for the comment regarding political affiliations, at least here in the U.S., IRS rules governing nonprofits and political actions provide some boundaries to operate within; at bear minimum, they provide ‘cover’ for board action when a board member tries to inject their political actions into board business.
This is an excellent suggestion. We just had an instance where the “conflict of loyalty’ led a board member to choose to resign. Perhaps if we had had a similar statement in our Conflict of Interests policy, we might have found an alternative track for the board member to take.
As for the comment regarding political affiliations, at least here in the U.S., IRS rules governing nonprofits and political actions provide some boundaries to operate within; at bear minimum, they provide ‘cover’ for board action when a board member tries to inject their political actions into board business.
Well said, Jan. It's interesting also that the duty of loyalty often overlaps with the duty of care, both well embedded nonprofit legal concepts in many states. I once served on a board with an attorney who boasted of sitting on 18 other boards, on top of a very full-time law practice. Hmmm. I thought that's at least a dozen or so too many. Beyond potential conflicts of loyalty among so many organizations, it begged the question of whether the duty of care with respect to any one organization could be satisfied, with so little time to engage each organization.
I am a newly elected chair of a small non-profit. Our ED is also a staff member – a manager….I am concerned about conflict of interest. Should I be?
You've asked an important question. Yes, a Conflict of Interest policy is important. We've addressed some of those issues in past Blue Avocado articles:
https://www.blueavocado.org/content/nonprofit-conflict-interest-3-dimensional-view
https://www.blueavocado.org/content/conflict-interest-or-conflict-loyalty
I am confused by your statement that your "ED is also a staff member." That could lead you to both bylaw and job description discussions.
And thanks for taking your Board Chair responsibilities seriously.
Museum board member 1 has a spouse on museum foundation board. Conflict of interest or conflict of loyalty or no conflict at all?
Museum board member 2’s spouse is the director of the museum’s foundation. Conflict of interest or conflict of loyalty or no conflict at all?
Museum board member 1 has a spouse on museum foundation board. Conflict of interest or conflict of loyalty or no conflict at all?
Museum board member 2’s spouse is the director of the museum’s foundation. Conflict of interest or conflict of loyalty or no conflict at all?
Member 1 is no conflict at all. Neither member is paid so there should be no issue and presumably both organizations work together and share goals, so there should be no problem. To the extent either board discusses a matter that may negatively affect the other organization, the member in question could recuse themself to avoid being in a difficult position.
Member 2 is much more tricky, since we assume the Director is a paid position. Given that, this should be navigated with care and it’s beyond the scope of a simple comment to offer a solution, but a strong start would be creating a written conflict of interest policy and contacting legal counsel regarding best practices and suggestions once you share the particulars of the two organizations’ work.
Is it advisable to bring on a board member who is also a beneficiary of non-profit. For example: We donate to a village in Tanzania. We are currently fundraising to help a priest build a house “parsonage”. One of our board members has suggested we invite the priest to be on our board. Is this a potential conflict of loyalty?
Is it advisable to bring on a board member who is also a beneficiary of non-profit. For example: We donate to a village in Tanzania. We are currently fundraising to help a priest build a house “parsonage”. One of our board members has suggested we invite the priest to be on our board. Is this a potential conflict of loyalty?