March 5, 2024
On March 5, 1770, a group of American colonists gathered outside Boston’s Custom House on King Street and began taunting the British private who was guarding it.
The soldier sent word to his regiment that he needed backup, and the colonists sent word to anyone who would listen that they wanted more people to join them. You know the rest — someone in the rowdy mob threw an object that hit a British soldier in the head and when he fired into the crowd other soldiers discharged their muskets as well.
After the smoke had cleared, 11 colonists had been shot and five would die from their injuries.
In America, the event became known as the “Boston Massacre” while in Britain it was referred to as “the incident on King Street.” Whatever you call it, the tensions between the two sides had become a deadly conflict.
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Conflicts of interest rarely — if ever — turn bloody. But that doesn’t mean they can’t harm a nonprofit.
Conflicts of interest can arise in a nonprofit when someone there has a personal interest in the outcome of a decision.
A Conflict of Interest Policy is one of the most powerful tools a nonprofit can adopt to protect itself from situations that involve mixing personal and organizational interests that might compromise its reputation and mission.
Donors and the public want to feel good about supporting an organization that is committed to ethical principles. Implementing and enforcing a Conflict of Interest Policy sends a message that their interests are aligned with yours.
Conflicts of interest aren’t always clear cut, which is why a well-drafted policy is so important.
Board members are frequently in the position of having a conflict of interest because of their decision-making role. A conflict might arise when a board member has a financial stake in a company that the nonprofit is considering for a contract. Or is involved in an issue that might impact a family member, friend, or business associate.
If not managed properly, conflicts can lead to actions that violate a nonprofit’s mission, erodes public trust, and even threatens its tax-exempt status.
Although the IRS doesn’t require nonprofits to have a Conflict of Interest Policy to maintain their tax-exempt status, the IRS Form 990 specifically asks if they have one. (You’ll recognize the IRS Form 990 as the “tax return” that all nonprofits must file every year.) This means the IRS considers it a “best practice” — and your nonprofit should adopt one if it hasn’t already.
A comprehensive Conflict of Interest Policy addresses a range of situations, describes how they can arise, and provides guidelines for handling them. It explains the process for individuals to disclose any potential conflicts they may have, and if a conflict is present, a way to recuse themselves.
The Policy should establish how to handle a conflict of interest if one does occur, such as documenting its nature, the steps to address it, and the outcome. Having a clear record of how conflicts were handled demonstrates accountability and transparency — the kind of values donors and the public look for in nonprofits they want to support
That’s because even the hint of a conflict of interest that is not managed properly can lead to a lack of trust and disillusionment.
A Conflict of Interest Policy can protect your nonprofit from a lot of potential problems — you don’t want to go down in history as having made a bad decision that could have been avoided.
If your organization is interested in adopting (or revisiting!) a Conflict of Interest Policy, please don’t hesitate to reach out to Gordon Fischer Law Firm.
For the month of March, I’m offering a special to Iowa nonprofits. I will draft, revise, and edit the ten (10) policies expressly referenced by the IRS on Form 990 (which of course includes a Conflict of Interest Policy) specific to the unique mission of your nonprofit.
My email is: gordon@gordonfischerlawfirm.com
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And, The “Must-Have” Conflict of Interest Policy in Nonprofit Governance
