Non-Profits Boards: Conflict of Interest (Sample)
By Jim Robinson

 Conflict of Interest

NONPROFIT BOARDS: Conflict of Interest (Sample)

The board should establish conflict of interest policies regarding board, staff, volunteers, contractors, and organizational partners or allies and adhere to these policies in all dealings. The policies should include an obligation of each board member to disclose all material facts and relationships and refrain from voting on any matter when there is a conflict of interest.

Conflicts of Interest under Minnesota State Law
Under Minnesota state law, a contract between a nonprofit corporation and a board member or members may be avoidable unless the interested board member or members can establish that:

• The contract is fair and reasonable.
• Full disclosure by the interested board member or members was made to the full board or voting members.
• A two-thirds majority of the entire board or appropriate committees, or a full majority of the voting membership, in all cases not including the interested board member or members, voted in favor of the contract.

For further information, see the Minnesota statute section 317A.255. Also, the Minnesota Attorney General's Office, Charities Division (1200 NCL Tower, 445 Minnesota Street, Saint Paul, 612/297-4613), publishes a booklet, Fiduciary Duties of Directors of Charitable Organizations, which explains the law in narrative text.

Explaining Conflicts of Interest
For Board members of nonprofit organizations, conflicts of interest occur whenever a director acts in a position of authority on an issue in which they have financial or other interests. In other words, when there is a dual interest or the appearance of a dual interest for any board member, the potential for a conflict of interest exists.

For example, directors of agencies could be in conflict of interest if they offer services to the organization on whose board they serve even if the charge for these services is at or below the market value. Similarly, if a board member contemplates purchasing or leasing property that the organization may wish to purchase, the board member may be placed in a conflict of interest situation.

In cases of potential conflict of interest, directors must act to preserve and enhance public trust in the organization by putting the interests of the organization ahead of all other business and personal interests. In addition to the public's sensitivity to self-dealing, activities which appear to have a conflict of interest can be the basis for lawsuits against the directors and officers.

When directors are confronted with an actual or apparent conflict of interest, there are reasonable steps that the organization can take to preserve its integrity. Directors need not be disqualified from boards simply due to conflicts of interest.

Perhaps the most important step is for Board members to disclose information related to the possibility of dual interests to others on the board. Minimally, the director needs to inform the board of the important facts and details and must abstain from voting on the transaction. These actions should be recorded in the minutes to document the disclosure.

Conflict of Interest Policies
Many organizations adopt a Conflict of Interest policy. Carver Governance Design, Inc. (2060 Kingdom Drive, Columbus, IN, 47201) suggests the following Directors' Code of Conduct which includes information regarding conflict of interest.

Directors' Code of Conduct
The board expects of itself and its members ethical and businesslike conduct. This commitment includes proper use of authority and appropriate decorum in group and individual behavior when acting as directors.

1. Directors must represent unconflicted loyalty to the interests of the ownership.This accountability supersedes any conflicting loyalty such as that to advocacy or interest groups and membership on other boards or staffs.This accountability supersedes the personal interest of any director acting as an individual consumer of this agency's services.
2. Directors must avoid any conflict of interest with respect to their fiduciary responsibility.
   There must be no self-dealing or any conduct of private business or personal services between any director and the agency except as procedurally controlled to assure openness, competitive opportunity and equal access to otherwise “inside” information.
3. Directors must not use their positions to obtain for themselves or for their family members employment within the agency. Should a director be considered for employment, s/he must temporarily withdraw from board deliberation, voting and access to applicable board information.
4. Directors may not attempt to exercise individual authority over the agency except as explicitly set forth in board policies.
5. Directors' interaction with the executive director or with staff must recognize the lack of authority in any individual director or group of directors except as noted above.
6. Directors' interaction with the public, press or other entities must recognize the same limitation and the similar inability of any director or directors to speak for the board.
7. Directors will make no judgments of the executive director or staff performance except as that performance is assessed against explicit board policies by the official process.
8. Directors will deal with outside entities or individuals, with clients and staff and with each other in a manner reflecting fair play, ethics and straightforward communication.

Sample Conflict of Interest Policy
Management Assistance Program for Nonprofits (2233 University Avenue West, #360, Saint Paul, MN, 612/647-1216) provides the following sample conflict of interest policy:

Conflict of Interest
The Board shall not enter into any contract or transaction with (a) one or more of its directors, (b) a director of a related organization, or (c) an organization in or of which a director of Organization is a director, officer, or legal representative, or in some other way has a material financial interest unless:

• That interest is disclosed or known to the Board of Directors.
• The Board approves, authorizes or ratifies the action in good faith.
• The approval is by a majority of directors (not counting the interested director).
• At a meeting where a quorum is present (not counting the interested director).
• The interested director may not be present for discussion to answer questions, but may not advocate for the action to be taken and must leave the room while a vote is taken. The minutes of all actions taken on such matters shall clearly reflect that these requirements have been met.

Annual Statement
The Charities Review Council of Minnesota recommends that nonprofit boards have directors sign an annual statement regarding conflicts. One potential statement is as follows:

The undersigned person acknowledges receipt of a copy of the corporate “Resolution Concerning Conflict of Interest” dated ___/___/___. By my signature affixed below I acknowledge my agreement with the spirit and intent of this resolution and , I agree to report to the President of the Board of Directors any possible conflicts (other than those stated below) that may develop before completion of the next annual statement.

_______ I am not aware of any conflict of Interest

_______ I have a conflict of interest in the following area(s)

The Minnesota Council of Nonprofits (MCN)