According to the National Council of Nonprofits (https://www.councilofnonprofits.org/tools-resources/conflicts-of-interest), a policy governing conflicts of interests is perhaps the most important policy a nonprofit board can adopt. To have the most impact, the Council recommends the policy should be in writing, and the board and staff should review the policy regularly, annually.

A policy on conflicts of interest should (a) require those with a conflict (or who think they may have a conflict) to disclose the conflict/potential conflict, and (b) prohibit interested board members from voting on any matter in which there is a conflict.

Beyond including those two basic directives, each nonprofit needs to determine how the board will manage the conflict. We have to keep in mind that the IRS Form 9901 (https://www.irs.gov/ pub/irs-pdf/f990.pdf) asks not only about whether the nonprofit has a written policy on conflicts of interest, but also about the process that the nonprofit uses to manage conflicts, as well as how the nonprofit determines whether board members have conflicting interests.

Some state laws governing nonprofit corporations include provisions describing what must be included in a nonprofit’s conflict of interest policy, or how conflicts are to be managed. For example, New York law requires nonprofits to have a conflict of interest policy and the state law also provides guidance for drafting the policy, which must state that directors, officers and key employees are to act in the “best interest of the nonprofit.” New York law also requires nonprofit boards to adopt a process so that board members can annually disclose potential conflicts. See New York Nonprofit Revitalization Act of 2013 (https://www.nysenate.gov/legislation/api/ 1.0/lrs-print/bill/A8072-2013).

Best Practices determine that annually, all Board Members and Directors2 should fill out a questionnaire disclosing his or her personal and professional obligations. Ask where they work, what other boards they serve on and what their terms are there, what other financial interests they might have, and where their spouse and immediate family members work and serve on boards.

It’s common for board members with a specific expertise to be asked to serve on multiple related boards. Discuss with potential board members how they will handle situations that may come up if they serve with another organization, whether it’s one you might compete with or one you

might partner with. For example, how will that individual react when the two organizations are competing for the same business or funding?

1 Because they receive tax breaks, nonprofit entities need to be especially careful to avoid conflicts of interest.
Most nonprofits must file Form 990 to the Internal Revenue Service (IRS) describing its mission, detailing its accomplishments over the past year, and showing where its revenue came from. The form is available to the public and gives potential donors and employees a chance to review the organization’s financial health. Form 990 also requires disclosure of potential conflicts of interest. Conflicts of interest in nonprofits can rise to the level of “excess benefit transactions,” which lead to IRS sanctions.

2 Existing members should update the questionnaire annually to make sure you are aware of any new obligations they have made