Last week, someone emailed me this question: Is it okay if an active board member decides to sell their services in the not for profit? Would it be a conflict of interest?*
This is a really good question. Conflict of interest is an incredibly important area in nonprofit organizations precisely because their board members by law may not profit from serving on the board. This is a key distinction from for profit boards. For this reason, the nonprofit board should discuss the issue of conflict of interest (doing its homework and including an attorney experienced in such matters) and set good, solid policy that will guide them in situations that could have conflict-of-interest potential.
And, needless to say, the board doing this proactively (that is, before potential conflict of interest situations occur), is ideal.
Unfortunately, too many boards don't even think about developing this kind of policy until they are smack in the middle of a situation that calls the question. Clearly, this makes it much more challenging for the board to develop objective and broadly applicable policy, since they are focused on whatever the specific situation is. And without existing policy, it can appear that the board is singling out a particular board member, which can become a situation fraught with conflict! Monitoring conflict of interest issues should not be considered personal - it is simply part of the board's job of safeguarding the legal standing - and just as importantly, the reputation - of the nonprofit organization. Having existing policy takes the personal aspect out of the equation, thereby reducing the possibility of the situation becoming contentious.
Generally speaking, it is NOT a problem for nonprofits to purchase services from board members – however, this is terrain that should be carefully and intentionally managed by the board as a whole so that conflict of interest situations do not develop, and what's more, so they are not perceived by others. The nonprofit's image and credibility in the community are paramount here.
Some questions to be aware of when considering purchasing services from a board member:
Has the board considered other similar vendors and in so doing made a conscientious choice based on established criteria that reflect the best interests of the nonprofit?
Has this selection process, and the selection criteria, been well conceived, documented and made available to the public?
If selected, is the board member offering some added benefit to the nonprofit such as an extraordinary discount?
What is the term (length of time) that services will be purchased? If long term (for example, an architect on building a new facility taking place over several years), it may be wise for the board member to take a hiatus from the board until the vendor relationship is concluded.
In any case, the board member in a vendor relationship with the nonprofit should recuse him/herself from any decision-making that pertains to the contract, so that s/he is not seen to be wielding undue influence.
The most important thing for the nonprofit board is to discuss and develop good policy on this in advance of any specific situation. While it is infrequent that conflict of interest issues arise, and even less often that they become real legal issues, the mere appearance of one can be damaging to the nonprofit's reputation in the community, not to mention the negative impact of a conflict between board members. As we all know, reputation is the foundation of fundraising and overall institutional support - so, in the case of conflict of interest, "better safe than sorry" most definitely applies!
For more information on this and other nonprofit board responsibilities, see Chapter 1, The Nonprofit Board of Directors, in Nonprofit-KnowHow.
*Hearty thanks to Aiesha Teague, accountant to a nonprofit, for asking this great question and prompting this post. Readers: Feel free to send your questions to us, and we'll answer them here!