What is a conflict of interest? Real or perceived conflicts of interest can occur when the personal interests of board members, staff, or volunteers are in conflict with the interests of the nonprofit or charitable organization with which he or she is affiliated. For the board, conflicts of interest might arise when a director:1
- Has a personal interest in a proposed contract with the nonprofit organization
- Has an interest in a proposed contract because he or she is an employee or stakeholder in the organization with which the nonprofit is contracting
- Has an interest in a proposed contract because he or she is also a board member in the organization with which the contract is proposed
What is a conflict of interest policy?2 A conflict of interest policy is a policy that requires that directors, officers, staff and volunteers act in the best interest of the organization and stipulates that they should not be controlled or restricted by any external entity or interest group. The policy (or related procedures) should require disclosure, review and decision on actual or potential conflicts in order to ensure that all conflicts of interest or the appearance of one, within the organization and the board are appropriately managed through disclosure, recusal or other means. The conflict of interest policy should ensure that no person benefits inappropriately, or appears to benefit inappropriately, from any transactions in which the organization is involved.
Why is it important to have a conflict of interest policy? Directors of nonprofit or charitable corporations have a legal obligation to act in the best interests of their organization.1 As such, it is essential that members of a nonprofit or charitable board of directors understand their role and avoid any actions that could be construed as conflicts of interest.1 Section 98 of the Canada Corporations Act instructs directors to declare a conflict of interest as soon as it becomes apparent.1 In cases where legislation does allow contracts in which a director has a conflict of interest to be ratified, the director must declare his or her interest and abstain from voting on related matters. (Also see Standard B12.) Having a defined conflict of interest policy will help boards of directors navigate cases in which conflicts of interest arise.
Conflict of interest policies should include:
- Guidelines on what types of circumstances constitute a conflict of interest
- Consequences for failing to disclose a conflict of interest
From "Accreditation Preparation Workbook Section A: Board Governance," Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.
- “Primer for Directors of Not-for-Profit Corporations: Rights, Duties, and Practices,” Industry Canada, 2002.
- “Standards Program Definitions,” Imagine Canada, May 2011.
Standards Reference Guide