A conflict of interest occurs when an individual’s personal interests could improperly influence their decisions. In nonprofits, conflicts of interest can involve financial relationships, family connections, or other personal interests that may compromise the organization’s integrity. Every nonprofit should have a written conflict of interest policy to ensure transparency, protect the organization’s reputation, and uphold public trust.
Based on our most recent field study and national nonprofit index, Leading with Intent, 96% of nonprofit organizations have a written conflict of interest policy in place. While having a policy is important, it’s even more critical that board members know what is included in their policy, review and sign it annually, and check to see that the policy is reflective of the organization’s needs today.
The importance of a Conflict of Interest Policy for nonprofits
While conflicts of interest are sometimes unavoidable, undisclosed conflicts can potentially put your organization at risk and erode the public trust. (Rick Cohen’s column on the U.S. Tennis Association explains this well.) Why? Because providing oversight is a key board responsibility.
Providing oversight involves big-picture thinking about current programs and projects, outcomes, and ways of operating in pursuit of the organization’s mission.
This is accomplished through the following activities:
- monitoring the organization's finances
- monitoring and evaluating progress in achieving the mission
- setting policies.
A clear conflict of interest policy is essential for maintaining public trust and accountability. While conflicts are inevitable, a transparent disclosure process ensures decisions are made in the best interest of the organization.
Examples of potential nonprofit conflicts of interest include:
- A board member voting on a contract involving their own business
- A family member of a staff member being hired without an open process
- A board member is also the chief executive of an organization with a similar mission or program structure
The Board’s Role in Managing Conflicts of Interest
To promote compliance, transparency, and accountability, BoardSource recommends that all nonprofits have a conflict of interest policy. The board is responsible for formulating the policy and the appropriate procedures on how to implement the policy when conflicts arise. It’s important that the board also commits to actively self-monitoring to ensure ongoing adherence to the policy throughout the year.
What Should Be Included in a Conflict of Interest Policy?
Let’s dig a little deeper into what needs to be in your conflict of interest policy. We’ll start by asking you:
- Do I know where to find the conflict of interest policy?
- Do I know what my organization’s conflict of interest policy covers?
- Do all board members sign a conflict-of-interest disclosure statement each year?
- Do board members regularly disclose new possible conflicts on a regular basis?
- Does the conflict of interest policy include the board’s process for dealing with conflict?
- If a conflict arises, should the board member in question leave the room?
- Does it clarify the consequences for violating the policy?
If you answered “no” to any of these questions, it’s time to take a look at your conflict of interest policy and make some necessary changes.
Sample Conflict of Interest Policy
BoardSource members get access to a sample conflict-of interest policy as part of their membership. The sample policy follows a traditional legal format and is recommended by the IRS. Part V, Section 5 of IRS Form 1023 asks questions to determine if the organization has procedures for handling conflicts and makes recommendations on creating a conflict of interest policy if one does not exist.
Article I: Purpose
Article II: Definitions
- Interested Person
- Financial Interest
Article III: Procedures
- Duty To Disclose
- Determining Whether a Conflict of Interest Exists
- Procedures for Addressing the Conflict of Interest
- Violations of the Conflicts-of-Interest Policy
Article IV: Records of Proceedings
Article V: Compensation
Article VI: Annual Statements
Article VII: Periodic Reviews
Article VIII: Use of Outside Experts
If you’re looking for additional policies and forms, BoardSource’s Nonprofit Policy Sampler includes an extensive collection of samples, giving you everything from general guidance on issues related to standards of operation to 10 very detailed examples of conflict of interest policies, processes for disclosure, and foundation-specific guidelines. You are able to access and download the policies and content for easy adoption into your nonprofit practices
