Charity Governance

Handling Conflicts of Interest

Are you involved in decision-making or representing a non-profit organization? This could mean holding the position of executive director or being a member of the board, among others. If that's the case, it's crucial to manage conflicts of interest effectively and prioritize the use of the non-profit's resources towards achieving its mission. Upholding the organization's best interests should always be your primary responsibility when carrying out tasks on behalf of the non-profit.

Effectively manage conflicts of interest

Identifying conflicts of interest can be a nuanced process, and avoidance may not always be possible.
Here are the signs to look for and the actions to take if you come across one.
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How to recognize conflicts of interest

A conflict of interest arises when an external observer could question whether your decisions on behalf of the non-profit were influenced by interests other than those of the organization. This encompasses situations where your personal interests or those of individuals you have a connection with, such as a spouse, employer, company you own shares in, or another organization you are involved with, could potentially sway your actions.

For instance, let's consider a scenario where a non-profit's board needs to purchase insurance for the organization. One of the directors on the board serves as an insurance advisor. If the non-profit chooses to buy insurance through this director, the director will receive a commission, thereby creating a conflict of interest.

While it's advisable to avoid conflicts of interest, it may not always be feasible. In such cases, you must take the required actions to address the conflict of interest.

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Steps directors must take when faced with a conflict of interest

Directors of Canadian non-profit organizations are required to promptly inform their fellow directors about any potential conflicts of interest they may have.

During the first board meeting, directors must disclose any interests they hold in another business or organization that could potentially conflict with the non-profit's interests. If a new conflict of interest arises subsequently, it must be disclosed at the next board meeting.

If a director intends to enter into an agreement with the non-profit, specific rules must be followed. For instance, if a director wishes to purchase a property that the non-profit is selling, a conflict of interest arises. In such cases, the other directors must evaluate the offer's alignment with the organization's interests, and the conflicted director cannot take part in the discussion or vote on the matter.

In exceptional circumstances, conflicted directors may decide their own remuneration, but the amount must be reasonable. The meeting minutes must include information on any conflicts of interest and details of who participated in the decision-making or voting process.

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Steps for executive directors to take when confronted with a conflict of interest

Executive directors of Canadian non-profit organizations must adhere to specific regulations when entering into an agreement with their organization. For instance, if an executive director wishes to sell something that the non-profit requires for its operations.

Despite usually being responsible for authorizing such agreements, an executive director with a conflict of interest cannot do so in such a scenario. The board must evaluate whether the offer aligns with the non-profit's interests and authorize the executive director to enter into an agreement with the organization.

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Utilize the resources of the non-profit organization to accomplish its mission

Non-profit organizations possess resources such as funding, property, or information, all of which are owned by the organization. It is necessary to utilize these resources towards fulfilling the non-profit's mission.

Before utilizing these resources for a different purpose, it is essential to obtain consent from the individual or group to whom you are accountable. In the case of an executive director of a Canadian non-profit organization, the board's approval is necessary, whereas board members must seek permission from the non-profit's members.

Authorization is required to undertake activities such as:

• Withdrawing funds from the non-profit's bank accounts or utilizing its credit cards to pay for personal expenses, even if it is temporary.
• Utilizing the assets of the non-profit for personal purposes.
• Loaning the non-profit's assets or money to someone or another organization with whom you have a relationship.
• Utilizing confidential information about the non-profit or its operations to benefit yourself or any other person or organization.

If the person or people you ask for permission determine that your request is in the non-profit's best interest, they can approve it. For instance, the non-profit could gain from leasing some of its vacant space to you for a fair rent.

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Not following these regulations may lead to possible repercussions

If you fail to adhere to these rules, you could face severe consequences. If you act on behalf of the non-profit in a situation where you have a conflict of interest or misuse its resources without permission, the non-profit may take legal action against you. In such cases, the non-profit may ask the court to nullify your actions and require you to pay for any harm or profit incurred without permission.

In certain circumstances, other individuals may also take legal action against you. If you mishandle a conflict of interest and cause harm to someone, you could be held personally accountable for the damages.

Additionally, misusing a non-profit's resources may constitute a crime, such as fraud, if you take money from the organization without authorization.

Lastly, the non-profit may remove you from your position as a director or executive director. If you have been found guilty of defrauding an organization or repeatedly violating non-profit laws, a court may even prohibit you from serving on any non-profit board for up to five years.

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