These are conflicts of interest and should be avoided at all costs. A nonprofit board with conflicts of interest will quickly lose credibility.
As a board, one of the most important policies you can have in writing is a conflict of interest policy. Key aspects of the policy include requiring board members to disclose potential conflicts. Board members should also recuse themselves from being involved in or voting on any matter where a conflict does exist.
Nonprofits organizations need to spend time determining and documenting how the board will manage any conflicts of interest that arise. Beyond including those two basic directives, each nonprofit needs to determine how the board will manage the conflict.
Although nonprofits are tax-exempt and therefore don’t pay federal taxes, the organizations do have to file a Form 990 with the IRS. This form is the IRS’ way of ensuring that the organizations are conducting business correctly. The Form 990 does ask whether the nonprofit has a written conflict of interest policy, asks how the organization determines whether board members have conflicts, and also asks the nonprofit to outline its process for managing such conflicts. Depending on the state you’re in, state laws require certain things to be included in these policies. The IRS can penalize the non-profit and the board member for ongoing conflicts that are not managed; the IRS refers to these penalties as “intermediate sanctions.”
More often than not, board members are not aware that certain instances might create a conflict of interest. Certainly, some conflicts are glaringly obvious, but others are more subtle. Personal interests can often be in conflict, so an important piece of these policies is simply increasing board member awareness of activities that could be suspect. Successful boards create an environment of transparency and encourage board members to disclose anything that may even appear to be a conflict.
When it comes to how to avoid potential conflicts of interest, there are many examples that can be borrowed from other organizations, and your organization’s lawyer can also help. Many states also offer guidelines about how to word your policies and what to include.
Implementing these tried-and-true methodical practices listed above will go a long way to keeping your board “above board” and your credibility intact when it comes to dealing with conflicts of interest.
Interested in how to improve board member engagement through the effective use of technology?
Boardable is a board-management software platform that centralizes all communication between you and your board. For example, Boardable is designed to increase engagement at board meetings, with the ability to contribute comments, discussions, documents, or polls for a meeting before, after, or during.