In the nonprofit world, and the rest of the world too, conflicts of interest are defined as anything that you control, influence, vote upon or have responsibility over that has the potential to personally benefit you, your company or your family. As you might imagine, Board of Directors have the opportunity to do just that on a somewhat regular basis.
There is a requirement for nonprofits to have a conflict of interest policy. Every agency must affirm each year the existence of such a policy or explain why it does not exist on their 990 (nonprofit tax form). Each member of the board, annually, should sign a conflict of interest form affirming there are no conflicts or disclosing what may be a conflict. Conflicts must be disclosed.
That’s right; I said disclosed. The requirement is that a policy exists, not that conflicts are not allowed to occur. The best policies include an official body that reviews each form and decides what to do about any reported conflicts. It may be the Executive Committee or the Board Development Committee but some sub-group of Board members will decide if the disclosed conflict is in fact a conflict and if so, propose a recommendation to address the conflict.
Here are some examples and some circumstances when each might or might not be a conflict. You may see a theme.
Conflict #1: The Chair of the Facility Committee is also a contractor and wants to bid on the building renovation.
If the Chair doesn’t own the company, is waiving their fee or donating back their compensation, it may not be a conflict.
If you bid out the work as per your policy and the contractor is the lowest bidder by a lot and you can prove that, it may not be a conflict.
If neither of the above is the case, it is absolutely a conflict.
Even when it’s not a conflict and you can defend why that is the case, it still may look like a conflict and, therefore, be perceived as one. It may not be worth it for that alone.
Conflict #2: An office supply salesperson is on the board and wants the agency to purchase products from his company, for which he will get a fee.
If the items have been bid out – or depending on the price- at least compared against the same items being sold elsewhere and the board member’s company is offering the lowest price, the Committee may not deem it to be a conflict. Even in this case, I would encourage the Board member to donate the fee back to the agency.
If the above is the case AND if the board member will donate the fee back to the agency, it isn’t a conflict at all.
If you do not compare the items or if the items are not the most favorable price (to the agency) it is absolutely a conflict of interest, regardless of if the member donates back the fee.
Conflict #3: The husband of the Board Chair owns property that is being considered as a program site.
First let me take a moment to say, unless the property is being offered for free or for $1 per year, this should not happen at all, under any circumstances, ever. The Board Chair’s spouse renting, even at below market rate, space to the agency is a one way trip to the front page of the paper, an eventuality much easier avoided.
Even if you bid it out and even if it is the best rate for the best location and the best deal for the agency, you still shouldn’t do it. You will never have the opportunity to explain to all the people who will judge you for it and it’s just not worth it. If you must have the property, ask the Chair to step down.
Perceived conflicts are just as dangerous as real ones. It doesn’t even matter if it’s real; if people think it’s real, it’s real to them and a problem for you.
I illustrate the above to make my point but most conflicts that will come up will be far more benign, though still potentially problematic.
When I served as an Exec, we had the owner of an HVAC company on the board and he sent his guys in to put up programmable thermostats. I assumed they would be done pro-bono and was very concerned when I got a bill a few weeks later. The Board member was incredibly gracious when I (nervously) called. He said it was a mistake and that we should have not been billed. Phew!
What if it had gone the other way? I should have clarified prior to accepting the work being done. Since I didn’t, I would have had to go the Board President or designated committee and ask for a decision- and forgiveness.
So, you may be wondering by now, what if the Committee deems it is a conflict, what then? The committee has to make a recommendation. There may be grand bargain devised but usually the decision is either that the purchase is not made or if it is made, that the Board member step down.
It’s not that agencies can’t do business with members of the Board, but I recommend you avoid it when at all possible. I have a few leadership rules I live by; the one that applies to this situation- and many others is – conflict avoidance is easier than damage control.
If you must do business with a Board member, document why. Bid it out and be able to able to and prepared to prove to your community why you elected to entertain a conflict of interest. It will be easy if the Board member’s company is the lowest bid, with the most comprehensive offer and the best reputation. It will be much harder if it isn’t.
What have you done to manage conflicts of interest? As always, I welcome your insight, feedback and experience. If you have other ideas or suggestions for blog topics, please share. A rising tide raises all boats.
Ps. I’m delighted to announce that, in addition to my current role as consultant and blogger, I have joined answers.com as their nonprofit expert. Please let me know if you have any suggestion for articles.