The 2 Crucial Elements of a Conflict-of-Interest Policy

Audit Committees: The Standing Pillar of Corporate Governance | BoardBookit

A solid conflict of interest policy is the best preventative measure to avoid conflict of interest in the board room. Most conflict of interest situations that a board faces aren’t always black and white, legal or illegal. It is up to the organization to set and share boundaries and policies to prevent instances of conflict of interest. 

What to Include in Your Conflict of Interest Policy

It is a given that every organization should have a well-defined conflict of interest policy, but what do you include? What areas should you cover? A conflict-of-interest policy has two essential elements:

1. Full Disclosure

Board members and all other decision-makers within an organization should disclose their connection with any groups doing business with the organization. The disclosure form should list all professional, financial, and personal affiliations that might affect their independent decision-making capacity during board service. Documenting this information is the first step in protecting an organization from issues of impropriety or scandal. Disclosure documents should be updated annually to ensure new relationships won’t affect the organization’s operations. The process can be as rigorous or as simple as your industry permits. Having this baseline of information allows the board to be fully informed of potential ties regarding significant decisions. 

The disclosure serves as a guide to determine conflict of interest when the board handles specific issues. The chair should regularly review the material. This process protects the organization from biased decision making and allows board members to keep their integrity.

ProTip: BoardBookit’s Survey feature is a great way to complete and track the completion of conflict of interest signatures. When formatted as an annual survey, the conflict of interest documents can be securely stored in the board portal. The survey format creates an easier process for board members to complete and makes it more manageable to administer year after year. 

2. Abstaining from Discussion and Voting

For an effective policy, Board directors with potential areas of a conflict of interest will refrain from participating in discussions and votes on matters involving their particular conflict of interest. This may mean avoiding votes on certain transactions between the organization and their conflict relationship. Ideally, the board member will abstain from voting on their own accord, but it helps to be prepared with a process for asking the board member to refrain if the need arises. 

As with board members, it is also essential to consider the relationships staff members may have outside the organization. Any staff member that discloses a possible conflict should also abstain from votes and discussions regarding that potential conflict. 

Common Conflict of Interest Questions to Consider in your Policy

What are some examples of actual and potential conflicts of interest?

  • Organization policy requires competitive bidding on purchases of more than $1,000, but a printing firm owned by a board member’s spouse receives the $25,000 contract for the annual report, and no other bids are solicited.
  • A board member serves on two boards in the community and finds himself in the position of approaching the same donors on behalf of both organizations.
  • A staff member receives an honorarium for conducting a workshop for another group in the organization’s field of interest.

Should an organization contract with a board member for professional services, such as legal counsel or accounting?

Attorneys, accountants, and other professionals can contribute valuable expertise to a board of directors. Due to the potential for conflict of interest, board members in these professions should voluntarily contribute their services. In a situation where the board member is simply associated with the firm in question, the board member should remove themselves from discussions about the bid and any competing bids during the selection process. If a competitive bidding process results in selecting the board member’s firm, the board member should abstain from any future votes connected with the organization. 

Pro Tip: For a deeper dive into defining conflict of interest, check out our last post here

Keep Surveys and Policies Organized with BoardBookit

BoardBookit’s secure connection and collaboration tools help manage all of the policies and documents your board handles daily. Implementing a board portal solution can streamline your governance practices and create a more secure and seamless board meeting experience. Start a conversation today to learn more!

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2020-08-11T17:25:50-04:00