There are a host of materials available for download on the topic of (a) what constitutes a conflict of interest for a member of the Board of Trustees of a nonprofit and (b) what penalties may arise as a result. However, the purpose of this post is to address (c) what procedure to put in place to vet it in the first instance.
It is obvious that an overt conflict of interest should be dealt with by simply prohibiting the activity. Yet, most conflicts of interest are not that overt. They are usually subtle, close calls; what lawyers refer to as mere potential conflicts of interest. In many cases, assuming there is an appropriate written policy, these can be waived by a vote of the Board of Trustees after full disclosure and non-participation in the vote by the affected person(s).
However, that process can be particularly unwieldy for large Boards. For example, if there is a decision on a potential conflict of interest that is time sensitive, such as to allow or not allow a transaction to go forward between two Board members, the idea of placing it on the agenda for the next month’s meeting to be decided by two dozen people who are pressed for time is not the most efficient approach.
Instead, a better solution would be to create a standing committee of the Board that would review potential conflicts of interest. It would be empowered to consider the matter between normal meetings of the Board of Trustees. It would also be authorized to make decisions to (a) waive the conflict of interest; (b) take some provisional action until the matter can be heard by the entire Board; or (c) disapprove of the conflict and not allow it to continue. The standing committee would be required to keep minutes and report to the Board as a whole, which would also have the right to overrule the committee’s decision. In other words, the Board would remain ultimately responsible.
This is not a complete solution, and there are circumstances in which this approach simply would not work given the nature of the conflict and surrounding circumstances. However, it is an approach that is workable if applied in good faith and moderation.
© 2011 Nissenbaum Law Group, LLC