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Conflicts of interest - and how to deal with them

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A problem that inevitably arises for charities of all types is conflict of interest. In this article we will look at being aware of it, how to avoid it, and how to resolve it when it happens. 

Is an occasional conflict of interest such a bad thing? 

Conflicts of interest can lead to decisions that are not in the best interests of the charity and may invalidate a decision or action. They can lead to challenges from outside the organisation, which can in turn damage a charity’s reputation and affect public trust and confidence. In the worst-case scenario, this loss of trust can extend to charities in general, not helped by those cases that attract the attention of the media. 

We are often asked for guidance about potential conflicts of interest. Do contact us If you think you or your Trustees may benefit from talking to one our Community Development Officers. Call 01362 698216 or email [email protected] 

What sort of conflicts might present themselves? 

A typical example might be where a Trustee of a village or community hall is also a member of a group that hires the premises. Let’s say the Trustees are considering increasing hiring fees; that particular Trustee will likely feel caught between two conflicting priorities. And when he/she is acting as a village hall Trustee, he/she must act in its interests, not in the interests of the other organisation of which they are a member or Trustee. And consider, for example, a charity that works to provide sporting facilities within its community – and a prospective Trustee that runs a sporting goods business? Visit our earlier article Managing Trustees for further information about connected organisations appointing a Trustee. 

A Trustee’s personal and professional connections can bring benefit to the operations of a charity and these are of course often the main reason for an individual being asked to join the Board.  

Similarly, a conflict of interest may arise when an organisation is being founded by people who come from a similar field in another sector – in which case conflicts of interest may arise at the very outset of a charity’s existence. 

It can also arise where people who are Trustees also provide services to that charity. They might be  a local builder undertaking expensive refurbishment work. How would the charity respond if someone questioned why their goods or services were apparently passed over in favour of a ‘connected’ individual? 

Finally, a Trustee who is also a volunteer or service provider for a charity may experience potential conflict of interest on a daily basis in terms of how they interact with trustees, staff, and volunteers. Is the Trustee easily able to ‘switch hats’ depending on the operational context?   

Prevention or cure? 

Prevention. Every time. The adverse impacts of conflict of interest can be prevented where individual Trustees can see a potential conflict before it becomes tangible, and the other Trustees can also discuss the potential problem.  

What is the process involved in avoiding conflicts of interest then? 

The individual Trustee needs to consider the potential conflict of interest and act accordingly – this may involve declaring the interest and then ‘stepping back’ from involvement in decisions relating to the conflict of interest. 

The existence of a conflict of interest does not reflect on the integrity of the affected Trustee, so long as it is properly addressed. The Trustees need to understand their governing document and if the conflict of interest is permitted (For example, some governing documents expressedly state that Trustees cannot provide goods and/or services to the charity). Trustees need to decide how to manage the conflict of interest, and demonstrate that the arrangement is above board and beyond reproach. The Charity Commission expects Trustees to take appropriate steps ensure that they can do just that.  As part of the Code of Good Practice charities should be transparent, having good conflict of interest management, and an up to date Register of Interests help to demonstrate that.  In some situations charities might even need to seek permission from the Charity Commission to enter into situations where there is conflict of interest.    

Knowing the risks 

Conflicts of interests are rarely born of deliberate self-interest. The fact is that many Trustees, being public-spirited individuals, often function in more than one organisation, so lack of clearly defined roles and responsibilities is more likely to be the default cause than deliberate action. 

Key points to remember 

As a Trustee, you need to: 

  • maintain the clear, separate identities of the separate organisations you are representing (i.e. who am I representing in this conversation?) and 
  • be clear about where one function starts and the other ends.  

To recap, there are four key issues to bear in mind, and to be sure of: 

  • Transparency 
  • Declaration of interest 
  • Withdrawal from the decision-making process if appropriate 
  • Record discussions around conflict of interest, and how you addressed them.  A strong charity is not one that has not experienced conflict of interest but one that has processes in place to manage it, and will be able to talk about potential conflicts openly (these should be minuted as part of Trustee meetings). 

 

If you or your organisation need advice and guidance, contact our Community Development Officers on 01362 698216 or email [email protected]