Conflict of Interest . . . or Conflict of Loyalty?

"Conflict of loyalty" is a useful concept and term that gives us another dimension to work with than simply conflict of interest:

In our legitimate desire to avoid conflicts of interest in nonprofits, we typically make two oddly opposite mistakes:

  1. We narrow "conflict of interest" to a strict legal definition and focus only on matters that involve personal financial gain, and
  2. At the same time we are too quick to label any kind of relationship at all as a conflict of interest.

But often, the "conflicts of interest" in nonprofits do not involve personal financial gain. Consider the board member whose commitment to rights for people with disabilities leads her to serve on the boards of two such organizations. At Board A she hears about a new grant opportunity that is opening up at a local foundation. Should she tell Board B about it, or is she obligated not to mention it?

Or what about the deputy director of a nonprofit theater who sits on the board of a battered women's shelter: two very different fields. He's just met someone he thinks would be a great board member for either organization. Should he suggest this person to both, or to which one?

In another example, what should we think about a senior staffperson who is married to the executive director . . . but who works as a volunteer?

Backing up a bit to define conflict of interest

We want to protect our nonprofits from financial conflicts of interest because, to take a simple example, we don't want a board member who is a stock broker to use his influence to move the nonprofit's investments towards his brokerage, and then to steer the nonprofit's investments towards financial products that pay high commissions. Similarly, we don't want a board member who is married to the executive director to vote on the executive's pay.

(A "benefit from interest" is another way to describe these types of situations -- and they can sometimes work in an organization's favor, for example, if the stock broker waives his fees for the nonprofit.)

But many of the situations on nonprofit boards are not about direct financial interests. They are about conflicts between loyalties to more than one organization or cause.

We suggest:

Add this or something similar to your conflict of interest policy:

"We acknowledge that conflicts of loyalty sometimes arise that do not involve financial gain. We encourage (but do not require) that relationships and affiliations that might result in a future conflict of loyalty be disclosed, such as serving on other nonprofit boards or for-profit boards. We know that relationships and affiliations have potential for both conflicts of loyalty and collaborative benefits, and open discussion of such situations allows for informed and thoughtful choices."

See also in Blue Avocado:

Jan Masaoka is publisher of Blue Avocado and the CEO of the California Association of Nonprofits (CalNonprofits). Her books include Best of the Board Cafe (Fieldstone Alliance) and The Nonprofit's Guide to HR: Managing Employees and Volunteers (Nolo Press). She has caused many conflicts and is full of conflict herself.

 

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Comments

For our nonprofit in a small community, one of the most frequent actions we take, is to bring forward and acknowledge any interest or loyalty issues, so it is on the table and recorded in the minutes. Then the board member or volunteer can abstain from any related votes. For most issues, the real risk is small town gossip about favoritism or under the table mystery. We ask for identification of any possible conflicts with agenda items to be announced at the beginning of each meeting with a statement similar to the example above. It is printed at the top of all agendas. This has worked well for us so far.

Excellent suggestion. The world does not always conform to right and wrong.

Should we also add to the conflict of interest policy-regarding direct political affiliations? Many times board members who are politically connected, join boards to sell their politics and/or profile themselves for political elections. At the same time, conflict of interest also includes those in non profits who work directly for Prime Ministers and Ministers as a side job.

This very useful article led me to "Nonprofit Conflict of Interest: A 3-dimensional View," (July 6, 2010). That provides an informal policy plus links to three others. #3 is Silk Model Policy. Clicking on that gives me a Compass Point screen that says that the article isn't found. Nor are any articles by him remaining on the Adler & Colvin firm's Resources. I've found Silk Nonprofit Law's phone and address -- but there seems to be no web address!

Any idea where Silk's library of free reports, forms, info has gone? It was really valuable.

Thanks for your continuing yeoman's work to keep Blue Avocado coming and interesting.

Barbara

Barbara, they're there . . . just a little hard to find. Look in the "governance documents" at the link below, which has Tom Silk's model bylaws, whistleblower, and other documents as used by CompassPoint. He wrote them both for CompassPoint to adopt and to serve as models for others.

www.compasspoint.org/governance-financial-documents

This is an excellent suggestion. We just had an instance where the "conflict of loyalty' led a board member to choose to resign. Perhaps if we had had a similar statement in our Conflict of Interests policy, we might have found an alternative track for the board member to take.

As for the comment regarding political affiliations, at least here in the U.S., IRS rules governing nonprofits and political actions provide some boundaries to operate within; at bear minimum, they provide 'cover' for board action when a board member tries to inject their political actions into board business.

Well said, Jan. It's interesting also that the duty of loyalty often overlaps with the duty of care, both well embedded nonprofit legal concepts in many states. I once served on a board with an attorney who boasted of sitting on 18 other boards, on top of a very full-time law practice. Hmmm. I thought that's at least a dozen or so too many. Beyond potential conflicts of loyalty among so many organizations, it begged the question of whether the duty of care with respect to any one organization could be satisfied, with so little time to engage each organization.

I am a newly elected chair of a small non-profit. Our ED is also a staff member - a manager....I am concerned about conflict of interest. Should I be?

You've asked an important question.  Yes, a Conflict of Interest policy is important. We've addressed some of those issues in past Blue Avocado articles:

http://www.blueavocado.org/content/nonprofit-conflict-interest-3-dimensional-view

http://www.blueavocado.org/content/conflict-interest-or-conflict-loyalty

I am confused by your statement that your "ED is also a staff member."  That could lead you to both bylaw and job description discussions. 

And thanks for taking your Board Chair responsibilities seriously. 

 

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