Conflict of Interest – 9 Essentials to Include in Your Policy and Statement

Increasingly, nonprofit boards are adopting policies and standards that reflect good governance. The Conflict of Interest Policy is one of those essential policies for any well-managed organization. Even the federal government has started reinforcing the importance of this particular policy by including questions about the Conflict of Interest Policy and Statement on the IRS Form 1023 (the application for 501(c)3 nonprofit status) and the IRS Form 990 (the annual financial information filing).

If your organization does not have a CoI policy and statement, ask your Board Development Committee (or an ad hoc board committee) to establish one now. Give them this article as a starting point for discussion.

Your Conflict of Interest Policy and Statement should include these “must-have” topics:

1. Definition of a conflict of interest

a. conflict between private interests and professional responsibilities

b. possible when establishing relationships with suppliers, partners, and clients

c. also includes: staff relationships, board relationships, employed board members

2. Applies to whom? (all board members, staff, and volunteers)

3. How will this topic be discussed with board members, staff, volunteers?

a. Conflict of Interest Policy discussion and Statement signing at orientations

b. Annual discussion and re-signing of CoI Statement

4. Who’s responsible for managing this communication?

a. Executive Director makes sure all staff and volunteers understand and sign Statement

b. Board Chair or Board Development Committee Chair works with board members

5. Where are these annually-signed statements kept?

a. Staff – personnel files of each employee

b. Volunteers – volunteer files

c. Board – board development committee files

6. Who needs to be notified of a potential Conflict of Interest?

a. Staff and volunteers notify the Executive Director

b. Board Members notify the Board Chair

7. What happens next?

a. Who’s responsible to investigate and decide what to do? (Board Development Committee)

b. Within what time-frame? (within 1 month)

c. Options for handling a conflict of interest:

i. Individual taken out of a position to decide or vote on the situation

ii. Remove this option from the choices under consideration

iii. Communicate to appropriate parties that this potential conflict exists

8. What communication will take place after the Board Development Committee’s decision?

a. Communication to all involved

b. Notice to the entire board of the decision and actions taken (entered into minutes)

9. Annually-signed statement should include:

a. Definition of conflict of interest

b. Directions about who to notify if there is a possibility of a Conflict of Interest

c. Possible penalty if a potential conflict of interest has not been disclosed

d. Signature and Date

A free sample Conflict of Interest Policy and Statement can be found at the bottom of this web page: http://boardsthatexcel.com/7-steps/step-1-foundations/.

Another sample Conflict of Interest Policy is available in the Instructions for IRS Form 1023, Appendix A: http://www.irs.gov.