Conflicts of Interest—The What and Why of Disclosure

Holly has served on her school’s Board of Directors for a decade. Her brother-in-law, Ben, owns a local roofing business and Holly has invested in the company. When the school needs a new roof, the Board solicits bids. Holly tells Ben to submit a bid for the work and shares where he should set the numbers to be successful. The Board is unaware of Holly’s relationship with Ben’s business and she votes during the decision-making process. Ben receives the contract and his company completes the job. The Board is pleased with the work and makes Ben’s business the school’s preferred vendor. Holly feels good about the arrangement, as it’s a win-win for both the school and her brother-in-law’s company.

Does Holly have a conflict of interest? 

Create or review your policy

The board members and leadership of a Christian organization owe it a duty of loyalty. The duty of loyalty requires leadership to act in the interest of the organization rather than in the personal interest of any individual, like a board member. People in key decision-making roles are required to avoid conflicts of interest that are detrimental to the ministry.¹ 

As a board member, was Holly really serving in the best interest of the school? Holly has a conflict of interest because she owes loyalty to both her brother-in-law’s business and her school. To avoid a breach of her duty to the school, she should disclose the conflict and abstain from the Board’s decision-making process. 

Of course, leadership can’t always avoid a conflict. That’s why a Conflicts of Interest policy and disclosure documents help protect your organization’s assets and reputational interests. They also help to limit liability exposure. Your policy and procedures should detail how you define a conflict of interest, how a board member discloses a potential conflict, and what steps the Board must take to limit a conflict.   

These three forms may help you begin a new policy or check an existing policy. Some states have specific language that must be included in your policy, so be sure to have your attorney review new or revised policy or forms to ensure compliance with applicable laws.

1. Conflicts of Interest Sample Policy. Your policy should define what’s considered a conflict of interest, reporting procedures, policy administration, and more.

2. Sample Conflict of Interest Disclosure Form—Situational. If a leader or board member encounters a potential conflict, this form allows the person to disclose it in writing.

3. Sample Conflicts of Interest Disclosure Form—Annual. This form should be completed annually by board members and others in key decision-making positions. It’s a self-reflection questionnaire that helps examine a person’s potential conflicts in the previous 12 months.

When all three forms are used, you create consistent awareness of potential conflicts and build trust in your leadership processes. 

Access Creates Potential Conflicts

In the course of board members’ work with a Christian organization work, they may become privy to donor lists, financial records, estate bequests, proposals, and more.  

These scenarios show how that kind of access can result in a conflict of interest and lead to personal gain:

• A pastor serving as a board member of a charitable foundation votes in favor of funds to be allocated to his church’s project. 

• A college trustee gains access to his school’s donor list and uses the names to solicit sales for his personally owned business.

Board members should remain independent and focused on the interests of the organization. A conflict of interest occurs when a member makes organizational decisions based on personal gain. To avoid a conflict of interest, a member must disclose when something in their personal life interferes with objective decision-making on behalf of the organization.

Not only do policy and disclosure procedures help protect your organization from liability, transparent governance helps create confidence in the leadership’s decisions and stay compliant with federal and state laws.

Receive a Board invitation?

It’s an honor to serve on a nonprofit board. But before you say “yes” to the invitation, there’s a few things you should consider. Read about three steps you should take when a nonprofit asks you to serve. 

Additional Resources

• Are Board Members Personally Liable for Board Decisions?

• The Risk of Leadership: 5 Problem Areas That Expose Personal Assets

• Sample Indemnification Provisions for Ministry Bylaws

¹ Governance and Related Topics – 501 (c)(3) Organizations.” Internal Revenue Service, https://www.irs.gov/charities-non-profits/irs-training-materials-governance. Accessed 23 December 2021. 

Posted January 20, 2022. 

The information provided in this article is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.