Terrie on
Nonprofits ©
September 2005
Revealing Conflicts of Interest
a Must
Q:
There is a lot of talk about what the Senate Finance
Committee is going to demand of nonprofits when
it finally comes out with “our version” of Sarbanes-Oxley.
One thing we keep hearing will definitely be required
is a conflict of interest policy. We’d like to
have one ready when our board reconvenes in October.
Can you tell us what elements we need to include?
A:
None of us can know precisely until the legislation
actually passes, which I expect will be early fall.
However, we know what the Panel on the Nonprofit
Sector convened by Independent Sector recommended
in its Report to Congress and the Nonprofit Sector
on Governance, Transparency and Accountability.
You should be on the right track if the policy
you write includes the following:
- A
definition of what your organization considers
conflict of interest. When you write your definition,
think beyond just the potential for financial
gain. Take into consideration both State law and
what the community is likely to consider a conflict.
The latter is probably the most important since
perception is reality in most people’s minds.
A
clarification of who you are covering under the
policy – e.g., just directors, directors and staff,
clients.
- A
requirement that people disclose any information
that would help the board identify
and avoid potential conflicts.
- A
clear statement of how and when disclosures should
be made. The buzz is that once a year boards
will be required to have everyone complete a written
disclosure of potential conflicts. In addition
you probably should require that anyone actually
facing a conflict verbally disclose that fact
as soon as the potential becomes apparent and
that the minutes reflect any such disclosures.
- A
clarification of any instances where a director
or other covered individual would be permitted
to engage in business transactions with the organization.
Because of the sensitivity of such
situations there should be an accompanying statement of the protocols that must be followed.
For instance, a director might be expected to
recuse him or herself from both discussions around
the relevant topic and the voting, with note made
of this in the board minutes.
- An
assertion regarding confidentiality, e.g., that
what is said in the boardroom will remain in the
boardroom and/or that neither client records nor
donor names will be “borrowed,” bartered or sold.
- An
indication of to whom the implementation of this
policy will fall, e.g., the governance committee.
- An
indication of the person or position to whom any
potential conflicts should be reported, e.g.,
the board chair or CEO. Encouragement
of and protection for those who would report violations
of the policy.
I think it’s valuable to remember that there
is nothing new in these bullet points. Board members
have always had a duty of loyalty, which encompasses
everything I’ve discussed here. What the Senate
Finance Committee is seeking to do by requiring
written conflict of interest statements is keep
this obligation at the top of everyone’s minds.
Terrie
Temkin, Ph.D. is an internationally recognized governance
and planning expert. She is president of NonProfit
Management Solutions, Inc., a principal in CoreStrategies
for Nonprofits, Inc., and a longtime member of AFP.
Contact her at terriet@nonprofitmanagementsolutions.com,
954-985-9489, or 866-985-9489.
|
