UK Charity - Conflict of Interest

This Article Covers:

• Conflict of Interest and Requirements
• Type of Conflicts
• Consequences and Risk
• Best Practices

Conflict of Interest

For nonprofits and charities, one of the most important policies that must be adopted and implemented is a conflict of interest policy for board members, trustees, and personnel. A conflict of interest occurs when a trustee or individual associated with the organization's obligation to further its charitable purpose is at odds with their own personal or financial interest, influencing and altering their judgment of the organization. A conflict exists even when there is only a possibility or perception of a potential financial or measurable benefit towards a trustee, or a conflict of loyalty. This can also be extended to people connected to the trustee involved, including family, relatives, or business partners.

If conflicts are not managed, they may result in significant penalties and intermediate sanctions against the person involved and the organization itself. Mismanaged interest and lack of policy create an environment of mistrust, eventually leading to a culture of disengagement and suspicion. Additionally, you risk and damage the reputation, credibility, and standing of the nonprofit and all the members connected to it, not just the person involved in the conflict.

UK Conflict of Interest Requirements

All trustees have a legal duty to act only in the best interests of their charity. The Charity Commission expects them to follow the CC29 guidance, especially when taking action in this regard. One thing to note is that a conflict of interest does not reflect on the integrity of the affected trustee for as long as it is properly addressed in the charity.

CC29, Conflicts of interest: a guide for charity trustees that details the responsibilities of trustees when it comes to dealing with conflicts of interest.

Charities must have the following measures in place and detail out steps in their governing documents:

• Identifying conflicts of interest
• Take reasonable steps to assess and manage any risks.
• Preventing conflicts of interest from affecting decision making
• Develop, review, and fully implement the charity’s conflict of interest policy. The governing document must contain processes on what the trustees must do during decision-making, in the context of an existing conflict of interest.
• Recording the conflict of interest
• Make a full record of the issue and how it was handled.

Type of Conflicts

Conflicts of interest must be assessed from a risk leadership perspective, determining the type of culture and acceptable risk by those expected to set the tone and lead the organization. In the US, the law primarily focuses on financial and personal benefits, but the types of conflict can go beyond those. In the UK and Europe, they take a broader interest-based perspective, and their regulations include the appearance of a conflict of interest.

Conflicts of interest must be considered even before appointing a trustee and identified as soon as possible. It’s also a trustee’s duty to declare conflicts of interest. The conflict of interest must also be considered, so any potential effect on decision-making is eliminated beforehand. Proper authority and processes must be in place before any decision to confer trustee benefits.

Some of the most common types of conflicts are listed below.

Financial Benefit

• This is the typical conflict of interest wherein a person gains financial benefit through connections.
• Examples of Financial Benefits:
  • A trustee owns a business and influences the board to purchase goods or services from their business for a higher profit.
  • A trustee accepts a favor or gift (above the organization’s limit) from a donor in exchange for a personal benefit.

Conflict of Loyalties

• This is described as a trustee that has difficulty fulfilling the duty of loyalty, one of the main legal obligations of a trustee's service to it's charity.
• Trustees must act in the organization's best interest at all times.
• This is difficult to manage and set restraints on; however, having a disclosure and exclusion policy within your conflicts of interest policy will significantly help.
• Examples of Conflicts of Loyalty:
  • A trustee that serves on two different nonprofit boards or is a government representative while acting as a nonprofit board member.
  • A trustee with relatives who are volunteers or hold positions in the nonprofit.
  • A trustee who is also a beneficiary.
  • The executive director or leadership hires an unqualified family member.
  • A trustee or employee uses a donor list to solicit donors for another organization.

The UK Government has provided additional examples of what may constitute a personal benefit.

Consequences and Risk

There are various consequences when the charity fails to act accordingly when there is a conflict of interest:

• Breach of the trustees’ legal responsibilities
• Any relevant transactions may become invalid or void
• Reputational damage, which could affect current and future funding

The Charity Commission follows a risk framework on when it will intervene, based on the nature and level of the risk posed to the charity by the conflict of interest. They will also intervene if concerns surrounding a trustee’s misconduct or mismanagement are related to the issue.

Best Practices

• Have a written conflict of interest policy and ensure all trustees know and understand the content.
• Have a written register of interests for your trustees.
• Have systems in place to identify and deal with conflicts of interest.
  • Be prepared to address any issues appropriately.
  • Keep a written record of your board's process and the decision made.
• Include declaring any actual or potential conflict of interest as part of the agenda during a trustee meeting.
• Disclose any payments or benefits received by trustees in annual accounts.
  • If you prepare accounts on an accrual basis, you must include details of payments and other benefits to charity trustees and their connected persons.
• Charity operations must be transparent, so ensure everything is recorded in writing. Always err on the side of openness.
• Consider removing the trustee if it’s a severe conflict of interest.
  • There should be a documented process to facilitate a trustee's removal.
• Don’t treat all conflicts of interest the same in every situation. Always look at the context, nature, or source of the conflict.
• Implement additional policies and processes within the organization to create clear parameters to prevent conflicts.
  • For example, funding, decision making, contracts, pay, gift giving, donations, procuring of goods
  • See our Handbook Policy section for more policy examples and templates

The UK Government has also provided a checklist that trustees can use when dealing with a conflict of interest.

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