A charitable organization should implement policies and procedures to ensure that all conflicts of interest or the appearance thereof, within the organization as well as the board are managed with disclosure and recusal.
All conflicts of interest need to be addressed cautiously and quickly resolved even though they may not be illegal or unethical. Yet these are still unavoidable. Strategies need to be intact and followed by the board when dealing with such conflicts. It is also important to make certain that only independent board members vote when a conflict of interest occurs (more information on Principle 12). On the opposite side, board members with material conflict of interest must recuse themselves from such board discussions as well as votes. It is crucial that a written conflict- of- interest policy and corresponding disclosure form as the guide for addressing conflict situations.
LEGAL AND COMPLIANCE ISSUES
-IRS Form 990 asks whether the organization
–has a written conflict-of-interest policy
–requires directors, officers, key employees, and others to annually disclose interests that could give rise to conflicts
–regularly monitors and enforces compliance with the policy
-IRS Form 990 also requires disclosure of certain transactions with current or former directors, officers and key employees
-Board members must meet certain standards of legal conduct, including the duty of loyalty—which means putting personal and professional interests aside for the good of the organization.
RESOURCES
–Independent Sector Conflict-of-Interest Policy
-Managing Conflicts of Interest:A Primer for Nonprofit Boards by Daniel Kurtz and Sarah E. Paul. BoardSource, 2006
-“Conflicts of Interest at Foundations: Avoiding the Bad and Managing the Good,”A BoardSourceWhite Paper
-The Nonprofit Policy Sampler by Barbara Lawrence and Outi Flynn. BoardSource, 2006