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Nonprofit Ethics – Conflict of Interest

A conflict of interest is a set of circumstances that creates a risk that professional judgment or actions regarding a primary interest will be unduly influenced by a secondary interest. Policies on conflicts of interest are some of the most important policies for a nonprofit board to adopt and follow.

During my 23-years’ experience in nonprofit management, I have written conflict of interest policies that were approved by boards. I have also witnessed boards and staff who were involved in serious conflicts of interest even though they had policies established to prevent conflicts of interest.

Three examples I have seen over the years:

Policy: Board members may not make a profit in any way in their outside employment or business interests from service on the board of directors. During board meetings, board members shall disclose any conflict of interest involving an issue before the board. While they may participate in discussion on the issue, they shall not vote.

Example: A nonprofit was investigated by the state because their executive director (who also was a board member) and the director’s relatives were the largest contractors providing services for the nonprofit. Nearly 50% of the organization’s budget was paid to the executive director and family members as contractors of the organization.

Policy: Board members hold a wide range of personal beliefs, values and commitments. Board members shall not attempt to use their board office to further their personal interests, or to convince other board members, the administrators or staff to act upon the board members’ wishes.

Example: The board president forced out an employee who was doing exceptional work. The president convinced the board to terminate the employee. Board members with “no skin in the game” other than meeting periodically throughout the year made a decision that resulted in the charity losing more than $1 million in annual support, impacted those receiving services from the charity and devastated staff who wondered “Am I next?”.

Policy: Board members should not abuse their office by using the nonprofit’s staff, services, equipment or property for their personal, professional or family gain. This includes using their position to obtain employment at the organization for themselves, family members or friends.

Example: A board member regularly hired personal friends as contractors for the organization. The work was substandard yet the contractor was paid for their work. Another more qualified contractor or an employee had to redo the work at a significant and additional cost to the charity.

Legally, officers and directors of charities must perform their duties in the best interests of the organization. Boards involved in conflicts of interest can be held personally liable for their actions.

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