The Nonprofit Ethicist | Conflicts of Interest and the Board

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Dear Nonprofit Ethicist,

Recently my organization decided to upgrade its Web site and needed budget figures from companies that could perform the work. Since our board president owns such a company, I asked her to provide one of the three proposals that we needed for the grant. I disclosed to the grantmaker that one of the proposals was from a company owned by the board president. We got the grant with the stipulation that the board president’s company not perform the Web site upgrade, citing conflict-of-interest concerns.

When I informed my board president that we received the grant but could not use her company for the work, she was upset and our relationship changed immediately. Over the past several months, I have felt strong animosity from her that has resulted in resistance to many of my initiatives and suggestions. She has been on our board for six years, and I know her well; her recent behavior toward me is clearly a result of this incident.

Our organization has a clear conflict-of-interest policy that requires only that conflict-of-interest transactions be disclosed openly and approved by the board, where the member with the potential conflict is excused from discussion and abstains from voting. This time the donor required it, but it makes me wonder whether the better method of conflict-of-interest management is never to entertain such a transaction. Certainly the organization can lose out on some sweetheart deals from altruistic board members, but this episode has made me see the potential for more risk than reward.

Distraught


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Dear Distraught,

So the board president thought you should have withheld relevant information from the grantmaker? Or maybe she thought the conflict-of-interest policy did not apply to her? Bizarre. Do not blame yourself for her bad behavior. Sadly, the safest course is to ban such transactions flat out. It is sad, because when conducted properly, some transactions with insiders may benefit an organization.

This is a teachable moment, so let me add that transactions with insiders are acceptable provided that (1) the conflict is disclosed to the board, (2) the board investigates other alternatives and determines that the transaction is in the best interest of the organization, and (3) the board approves the transaction after both debate and voting take place in the absence of the conflicted party.

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  • Jamye

    If you are in a small community, you might be in a position to seek services from board owned companies because they are the “only game in town”. I found myself in such a position as an executive director many times. When taking that course of action, I always made sure that documentable discussion regarding the service or product was held and included in the minutes of executive committee and board meetings. This kept everyone informed, kept transactions transparent and gave the opportunity for questions and concerns to be voiced. If board members or funders still find fault with these transactions after this course of action, the organization’s relationship with them is likely not beneficial anyway!

  • Patricia

    This issue is tough. Having served as a board member, staffer and executive director for a non-profit I must defer to the grantor.

    One of my major concerns in recent history has been the quality of the work lives of those who dare to do progressive work. I have witnessed too many instances in which the spouse, partner or friend supplies a certain product to or occupies a key position in the organization. Often there are no practices in place to resolve inevitable conflicts.

    Additionally, if the board supervises the work of the executive director then how can s/he possibly critique the product or services rendered by their boss.

    I must say that this cross polination is a common but horrid practice. Bully for this grantmaker and empathy to the E.D.!