Avoiding conflicts of interest

The need to know about and manage conflicts of interests  isn’t just good practice – it’s a legal duty. A few practical steps can keep the board right and protect the reputation of the charity writes Joy Allen, managing director of Leading Governance.

It’s a small world. When you live and work in a small city or town, everyone seems to know everyone. The same is true in the charity sector. I was recently asked to act as facilitator/chair for a few meetings of a local charity board to get through a difficult patch.  Relationships had broken down among board members, and several of them had expressed a lack of confidence in the chair of the board.

While I knew there were many issues in that boardroom, I was astonished to discover (half way through a difficult debate on potential redundancies) a very serious conflict of interest that hadn’t been declared. One of the board members had a family member working in the team that was being considered for redundancies.

How could that have been avoided? Best practice guidance suggests that a register of interest should be held, with a clear declaration from each board member of their own interests, and those of their immediate family and closest relationships. The register should be updated each year, and the chair of the board should know what’s in it.

These days, every board meeting should have ‘conflicts of interest’ early in the agenda, so the chair of the meeting can ask everyone to consider whether they may have any conflicts arising, having read the papers for the meeting.

Conflicts of interest include those arising where:

  • a director, or a person connected with a director, has a personal financial interest in a transaction with the charity. The interest may be direct or indirect
  • a director, or a person connected with a director, has a conflict of duty/loyalty
  • there is even the possibility that a director’s personal interests or duties/loyalties could affect his or her decision making

Given the nature of our work in the charity sector, it’s not possible to completely avoid conflicts of interest. What we must do is be aware of them, and ensure they are managed effectively. That means having a clear conflicts of interest policy, an up to date register of interests, and an agenda that includes thinking on potential conflicts.

In my facilitator/chair experience mentioned above, all of those were in place. At the end of the day it comes down to personal integrity and ethics. If we are to protect our personal reputation, the reputation of our charity, and the reputation of the sector as a whole, it’s essential that board members are clear about their legal duties and the responsibilities they have to do what’s right.

 

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