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  • How to Avoid Conflict of Interest In Your Nonprofit Board

How to Avoid Conflict of Interest In Your Nonprofit Board

By Josephine Victoria Yam, J.D., LLM.

2017 May 2

Last week, B3 Canada and the Canadian Bar Association (CBA) jointly hosted the webinar “Lawyers On Board: What You Need To Know Before Serving on a Non-Profit Board”. I was thrilled to have governance legal experts, Angela Weaver and Patricia McLeod, join me as fellow panelists. We were so pleased to have more than 300 lawyers from across Canada participate in our webinar.

One important question raised during the Q&A was:

How do you avoid a conflict of interest when you serve on a nonprofit board?

It is without doubt a very important question. After all, every board director has a fiduciary duty to avoid a conflict of interest. A conflict of interest arises when a board director stands to gain personally from a decision the nonprofit board is making. It arises for example when a person serves as a nonprofit board director while simultaneously providing professional services to that nonprofit - even if she is charging below-market rates. Or when a nonprofit is moving to a new office location and a board director recommends that the nonprofit move to a rental property that her family owns.

It is important to note that having a lawyer on a nonprofit board is not the same as having a lawyer on retainer with the nonprofit. A lawyer who serves on a nonprofit board may provide her opinion as a lawyer on the board. However, she should not provide her independent legal opinion as a legal counsel to the board. If the board requires independent legal advice on a matter, such as providing a legal opinion on a contract, the lawyer-board director should recommend that the board formally engage outside legal counsel for that purpose. To be prudent, the lawyer-board director should also have her recommendation recorded in the board minutes as well.

Here are several tips to avoid a conflict of interest when serving on a nonprofit board:*

 
Ensure that your board of directors is comprised of diverse individuals - in terms of skills, age, gender and ethnicity - in order to have all relevant and meaningful perspectives represented in the boardroom to encourage robust discussions
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Make sure that the number of board directors you have is sufficient so that no dominant viewpoint monopolizes any board discussion
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Have a comprehensive conflict of interest policy in place, strictly comply with it and review it annually; A conflict of interest policy defines a conflicting situation, who might be implicated, how to deal with specific situations, who monitors implementation, and how to handle apparent or actual conflicts
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Require each board director to sign an annual disclosure form listing all financial, professional and relevant affiliations that might affect her decision-making during year; Each board director should avoid even the appearance of a conflict of interest that might embarrass the board or the nonprofit
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No board director should ever accept or offer favours or gifts from or to anyone who does business with the nonprofit
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Indeed, serving on a nonprofit board requires that each board director fulfills her paramount legal duty to “act honestly and in good faith, with a view to the best interests of the organization”.** This legal duty is crucial to good board governance that every nonprofit deserves from its board of directors.

Sources: * Boardsource, The Handbook of Nonprofit Governance), ** The Canada Not-for-Profit Corporations Act (CNCA), s. 148 (1)

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