Managing conflicts of interest

Managing conflicts of interest effectively is not just about declaring your interest or leaving the room when you have a conflict of interest in an item on the agenda; it is about a mindset and culture that puts integrity and honesty first.

Why should conflicts of interest be well managed?

First and foremost, because acting with integrity and honesty matters in any setting and all the more so in a charity (Trustees, staff and volunteers are custodians of money intended for public benefit).

Second, it’s the law. Charity Trustees have a duty to act in the best interests of their organisation’s charitable purposes (i.e. its beneficiaries now and in the future). When a charity is a company, there are even more stringent requirements (e.g. to avoid and declare conflicts of interest).

Third, conflicts of interest can lead to poor decision making, loss of trust, reputation damage, reduced income and legal challenge.

One of the most common reasons for charity failures or adverse findings by the Charity Commission is that conflicts of interest were not managed effectively (or at all).

What is a conflict of interest?

There are many definitions out there but one that we find works well is:

“...any situation in which a trustee’s personal interests or responsibilities they owe to another body, may, or may appear to influence the trustee’s decision making.”

— Department of Culture, Media & Sport and the Charity Commission

Conflicts can be financial or non-financial and direct or indirect.

Financial interests include payments to a trustee by the charity or another organisation involved or award of a contract to a supplier with which a Trustee is involved. Non-financial interests could include decisions on services the Trustee or people related to them use themselves, gaining some other intangible benefit or kudos or awarding contracts to friends. Particular care should be taken not to forget conflicts of loyalty, where a trustee may have competing loyalties between the charity and some other person or entity (this can be especially problematic on boards with stakeholder or members representatives).

Indirect interests arise when a close relative or friend of a Trustee has a financial or non-financial interest in the matter under consideration.

How should conflicts of interest be managed?

It will rarely be possible to avoid all conflicts of interest; charities generally want Trustees who have a multiplicity of interests and connections and these may, on occasion, conflict with those of the charity. What matters is that conflicts of interest are managed appropriately and that no Trustee should have a pervasive conflict of interest across a most of the charity’s activities.

By far the most important foundation for managing conflicts of interest is transparency. Interests should be declared in a register and/or at meetings (any meeting where it is relevant) and this information should be shared widely within the charity. In many cases it will be appropriate (or even a requirement) to publish information on conflicts of interest.

A Trustee with a conflict of interest in a matter should not be involved in discussion and decision making on that matter. This is not just a question of withdrawing from the decision making meeting. It should include not being involved in consideration of the matter at all (before, during or after the decision making meeting) including not speaking to other Trustees or staff about it or otherwise trying to influence the decision.

In some cases it may be appropriate to structure decision making to ensure regular conflicts of interest are dealt with systematically. For example, if a Trustee has a regular conflict of interest in one aspect of the charity’s business (but not otherwise) it could be appropriate to delegate decision making on that matter to a sub-committee that does not include that Trustee.

All this should be set out clearly in a conflicts of interest policy, often as part of a wider Trustee code of conduct. The requirements of the policy should be made clear to any prospective new Trustee and potential conflicts of interest should be explored before appointment.

To find out more about managing conflicts of interest or any of the other governance support and training we offer, please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.