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Is A Conflict of Interest Policy Really That Important?

August 26, 2014

Short answer: it is.

The enthusiastic follow-up: yes, yes, yes.

Remember That Board Member Duty?

We cannot forget that charitable nonprofits exist for the public good and are not owned by an individual or group of individuals. Each nonprofit board member must exercise the “duty of loyalty,” placing the interests of the nonprofit before personal or professional concerns when serving, therefore avoiding potential conflicts of interest.

It’s Not that Complicated

We hear from all sorts of well-meaning folks who (unintentionally) complicate the concept of conflict of interest. In a basic example, it’s the kind of thing that should stop a board member from voting on an issue when there may be financial benefit to herself, her spouse, her family, her company or another organization where she may serve as a volunteer leader.

Who Wants to Know, Anyway?

When your organization files its IRS Form 990 each year, the Internal Revenue Service asks you to indicate whether or not your organization has a conflict of interest policy. You don’t have to say “yes.” But if you don’t, it looks a little shady, yes?

Local organizations in Sarasota, Manatee, Charlotte and Desoto counties with a presence in The Giving Partner are also asked if they have conflict of interest policies right on their profiles.

Surprisingly, 32% of nonprofits with profiles indicate they do not have a conflict of interest policy.  We are pretty sure that some of them may have adopted a policy years ago, perhaps when founded, but current leadership does not remember or can’t find the document. In any case, we can do better than this.

A new development in the State of Florida will make conflict of interest junkies jump up and down. The recently approved changes to the Solicitation of Contributions Act require 501(c)(3) nonprofits to adopt a conflict of interest policy and to provide annual certification of compliance with the policy by all directors, officers, and trustees of the organization.

Two Simple Actions for Nonprofit Boards Everywhere

  • Adopt an organizational conflict of interest policy that is frequently reviewed by board members and staff members.
  • Require board and staff members to complete a simple disclosure form each year certifying that they have reviewed the conflict of interest policy and sharing conflicts and potential conflicts of interest.

It is very likely–especially in this community–that your board members may have conflicts from time to time. Many caring individuals and their businesses are deeply intertwined in the work of more than one charitable organization. The conflict of interest policy will provide the necessary guidance to ensure that board members disclose conflicts and potential conflicts and do not vote on related issues if they arise in the boardroom.

And Finally…

The best charitable organizations out there focus on what is best for the missions they are upholding every day. They protect the charitable intent of the donors and funders who make their missions possible. So upholding a good, trusty conflict of interest policy is just natural.  And to add to the glory of it all, it’s not rocket science.

The National Council of Nonprofits has an excellent set of conflict of interest resources, including sample policies and sample annual disclosure forms.

 

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