Fried & Davis - Conflicts of Interest

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What is a conflict of interest?

A conflict of interest exists when a person who has a significant relationship with a nonprofit also is deriving, or may be in a position to potentially derive, a benefit from something the nonprofit is doing or may be doing.

How can a conflict of interest be resolved?

A conflict of interest can usually be resolved by disclosure of the conflict to a nonprofit's board of directors.

Do board members need to disclose potential conflicts of interest to the organizations they serve?

This requirement is generally not in the law. However, the adoption of a conflict of interest policy that requires board members to annually provide information about business activities involving the organization or its competitors is a great idea in our post-Enron world.

What should the board members do when a conflict of interest is disclosed?

The board should discuss the matter at a board meeting. If the conflict involves a particular transaction, the board should vote on the conflict before considering the transaction.

Can a nonprofit receive contributions from a corporation, foundation or other entity of which a board member has a conflict of interest?

Yes. Gifts from these sources would not contravene most conflict of interest policies because funds are flowing into, rather than out of the nonprofit.