Avoid conflicts of interest as a volunteer board member
Board members have a fiduciary responsibility to their organization and members. Decisions they make must be in the best interest of the organization and not to benefit personal, family or business interests.
Are you a volunteer board member of an organization? Were you trained on board responsibilities? Although there is little reward other than the satisfaction of a job well done, board members are still in charge of running a business. Your role as a board member automatically exposes you to one of the complexities of that position: potential conflicts of interest.
What exactly is a conflict of interest and how does it happen? Why are board members at risk and how can it be avoided?
According to Wikipedia, “Conflicts of interest can be defined as any situation in which an individual or corporation (either private or governmental) is in a position to exploit a professional or official capacity in some way for their personal or corporate benefit.”
Common forms of conflicts of interest include:
- Self-dealing, when a board member votes to enter into a transaction with their own company or with another organization that benefits the member
- Outside employment, when the interests of one job contradicts another
- Family interests, called “nepotism,” when a spouse, child or other close relative is employed or where goods or services are purchased from a relative or a business controlled by a relative
- Gifts, commonly called “kickback,” from people who do business with the organization or person receiving the gifts; gifts may include non-tangible items of value like transportation and lodging
Many conflicts of interest begin innocently — with favors to friends or family members that are perceived as special treatment. For example, a board member’s daughter opens a catering business and the board hires her to serve the annual meeting meal. Or the board member owns the catering business and the contract is approved.
The best way to deal with conflicts of interest is to avoid them. However, there are times when a potential conflict of interest could be good business, when the appearance of impropriety is just that – an appearance; nothing more.
What if the business deal is clearly the best for the money and the organization – can this be done? The answer is yes, but the key is to do it correctly! The board member must first disclose the situation as a potential conflict of interest, then recuse themselves from any related discussion or voting. In fact, they should leave the room while discussion is ongoing. Other board members with concerns would likely be more candid if the interested director is not present. Even so, it may not be wise to contract with the interested board member’s firm.
Board members who have benefited financially from a conflict of interest can be prosecuted. Remember, in your role as board member, your behavior and conduct must be ethical for the sake of your board and community.
Michigan State University Extension offers educational programs for people who would like to develop or improve their leadership skills.