5 Steps that Prevent Conflicts of Interest and Build Capacity

conflict of interest corruption ethics nonprofit ethics May 26, 2021
Capacity Experts: 5 Steps that Prevent Conflicts of Interest and Build Capacity

Nonprofits are values-driven organizations that are very concerned about preventing conflicts of interest. Although most organizations know that they must develop a conflict of interest policies, most organizations do not receive extensive training on what constitutes a conflict of interest. In a 2016 study I conducted, I examined what nonprofits identify as corruption. As part of our inquiry, we found that 96.4% (53) of respondents identified conflicts of interest as corruption. A little over 67% of respondents had not received any training on conflicts of interest disclosure. This suggests that nonprofits should be spending more time preemptively examining and defining conflicts of interest for staff, board members, and volunteers.

Preventing Conflicts of Interest

Organizations can take the following 5 steps to mitigate conflicts of interest from surfacing:

1. Clearly define the actions and transactions that constitute a conflict of interest for staff, volunteers, and board members. This includes establishing and clearly delineating the procedures for making decisions on transactions that are potentially problematic. 

2. Creating an annual schedule to monitor potential conflicts of interest. This includes requiring full disclosure of existing or perceived conflicts of interest. In addition, staff, management, volunteers, and board members must sign their conflict of interest policy and disclose any conflicts they may have.

3. Outline the steps or corrections that must be made when a conflict is disclosed for all staff, board members, and volunteers. This includes requiring that individuals who have a conflict of interest recuse themselves from discussions on transactions where a conflict exists.

4. Ensuring up-to-date recordkeeping that documents the process for evaluating and managing conflicts of interest. Records should reflect who participated in the discussions, issues that were considered, how decisions or corrections were made, the steps that will be taken to manage or address the conflict, and any votes or resolutions. 

5. Providing training to staff, volunteers, administrators, and board members to adequately explain what constitutes a conflict of interest, how to report it, what the consequences are, and what protections people have. This creates an environment where potential whistle-blowers are assured that their jobs are not at risk if they report an ethical lapse or potential conflict of interest. 

When boards fail to recognize conflicts of interest, there can be serious legal and reputational repercussions for the organization. When conflicts exist, in the most extreme circumstances, members of the board of directors can be sued, or they can be found to have breached their duty of loyalty. Under the latter, they can be held personally liable.

This is the first part of a series that addresses conflicts of interest. 

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