Conflict of Interest Policies for Non-Profit Organizations

An earlier posting discussed the important – and certainly non-intuitive – finding of behavioral ethics research that doing good can actually increase the risk of doing bad.  In addition to an unexpectedly high likelihood of wrongdoing, those in the business of doing good – e.g., charities, foundations and other non-profits – may face outsized impacts from ethical missteps, particularly related to COIs, given their need to maintain the trust of donors and others to fulfill their respective missions.  In this post we begin to explore measures that non-profits can take to address COI risks.

According to the National Council of Non-Profits, a “policy governing conflicts of interests is perhaps the most important policy a nonprofit board can adopt. To have the most impact, the policy should be in writing and the board (and staff) should review the policy regularly. Often people are unaware that their activities are in conflict with the best interests of the nonprofit so a goal for many organizations is to simply raise awareness and cultivate a ‘culture of candor.’ It is helpful to take time at a board meeting annually to discuss the types of situations that could result in a conflict between the best interests of the nonprofit – and the self-interest of a staff member or board member.” Indeed, the Internal Revenue Service – which has an oversight role over charities in U.S. – expressly recommends that they develop a COI policy .

Non-profits seeking to draft or revise their COI policies can find plenty of publicly available examples from which to draw ideas and language (including some at the National Council of Non-Profits web site).  For instance, the COI policy of the Gates Foundation  contains a clear and comprehensive articulation of what generally would be  considered a COI at the Foundation; a discussion of the types of situations that could give rise to COIs there; requirements concerning disclosure and management of COIs, including mandating the involvement of the legal team in these matters (see this post on the need for independence in COI  management measures); detailed guidance on COI issues regarding the receipt of directors’ fees, authors’ royalties and like matters (for further information on COI issues in serving on outside boards see this post); a provision on outside employment, with – understandably – greater restrictions placed on high ranking employees; and discussions of a range of other COI issues relevant to the foundation, including those concerning matching grants and employee political activities.  The Gates Foundation policy also has an extensive series COI-related FAQs that could be an invaluable source of ideas for those drafting/revising a COI policy for another non-profit.

But, by bringing attention to this resource I don’t mean to suggest that non-profits should simply adopt what the Gates Foundation, or any other organization, has done regarding COIs.  Different non-profits could have COI issues that are, relatively speaking, unique.  For instance, this article about COI policies for cooperative groceries – a very different sort of organization than a foundation –  identifies a series of “emotional conflicts of interest” that may pose risks for organizations of that kind. (E.g., “The board president’s daughter is a co-op employee. After she is denied a raise of the size she had expected, her father begins bringing up concerns at board meetings about the fairness of the pay raise system and staff turnover due to low pay.”)  As with any other sort of COI mitigation effort, the key for non-profits is to engage in some form of risk assessment before designing policies or other compliance measures. And, of course, the effort should include determining what any relevant legal requirements or expectations are for the entity regarding COIs.

Finally, understanding the COI risks of non-profits is important not only to board and staff members of such organizations but also employees of for-profit organizations who deal with non-profits, under the general imperative (often espoused in this blog) of not causing conflict in others.

A future post will discuss COI training for non-profits.