Conflicts of interest affect all charities, regardless of size, type, or charitable purpose.
And when cases and stories of conflicts of interest relating to trustees hit the news, they hit hard.
Public trust and confidence in the charity plummets, and reputational damage can sometimes be too much for the charity to bounce back from.
This is why we talk about understanding the roles and responsibilities of trustees so much in our posts. It’s essential. Trustees need to know what a conflict of interest is, how it can affect the charity, and how it can be managed responsibly and in line with charity governance and the law.
Trustees are chosen/choose to join a charity because of the skills, experience, and, in some instances, connections they can bring to help support and enhance the charity in various ways.
However, because trustees have varying backgrounds and employment connections, conflicts of interest will inevitably arise.
In this post, we look at different types of conflicts of interest that charities could experience and the role of trustees in managing, reporting, and accounting for these to avoid more serious consequences.
Conflicts of interest in charity
A conflict of interest in a charity is where a trustee may benefit personally, in some way, from a decision that they have made.
This means that a trustee has not acted in the charity’s best interests and, as a result, shown that their loyalty lies elsewhere.
There are two main types of conflicts of interest:
Financial – a financial conflict of interest is where a trustee’s own financial interests influence the decision-making process for the charity. This could lead to the trustee directly benefitting financially, receiving a payment in some form beyond what is legally allowed as a trustee, or a family member receiving some form of payment (indirect financial benefit) that is not in the best interests of the charity.
Examples of this can include paying the trustee for their role (more than their expenses), awarding contracts to organisations where a trustee has a vested interest, or there could be a conflict of interest if a charity sells (leases or hires) or purchases property from a trustee.
Loyalty – conflicts of interest can arise in this area when a trustee uses their connections and experience to support the charity, but it can also be seen as rewarding their personal interests. These loyalties can be to other charities the trustee supports/works with, family members connected with decision making, and even the trustee’s employer and place of work could pose a potential conflict.
Examples could be the trustee choosing their employer as an organisation for the charity to work with even though they might not be the best choice or choosing a business that a family member runs or owns as the trustee has a loyalty to them, but the decision is not made in the charity’s best interests.
Damaging affect conflicts of interest can have
By not reporting a conflict of interest or managing these in the best interests of the charity, you run the risk of:
- Legal and regulatory consequences
- Reputational damage
- Decline in public trust
- A decline in donations and funding opportunities.
What do trustees need to do?
Trustees have a legal duty to act in the charity’s best interests, be accountable for their actions, and be transparent in their decision-making. This means that trustees must:
Identify and declare all conflicts of interest immediately and certainly before board meetings, where decisions are made/take place.
Prevent any conflicts from affecting decisions by following your charity governance documents, your robust governance systems and processes, and, in some cases, seeking authority from the commission, which can provide guidance and further advice.
Manage conflicts of interest responsibly and in line with your charity documents and Charity Commission guidelines. Understand clearly what measures you must take if there is a conflict of interest and how serious this conflict of interest is. You can find more information here relating to checklists to follow.
Record, formally, all conflicts of interest with as much information as possible and disclose any trustee benefits in the charity accounts.
Conflicts of interest in charity
As a trustee, all decisions you make should be to support the charity’s charitable purpose; they should be balanced and not influenced by private interests.
To support trustees, charities should have up-to-date policies relating to conflicts of interest readily available and provide regular training on governance in this area.
Boards should also be open, transparent, and confident in immediately raising conflicts of interest, communicating clearly, and managing any conflicts that do arise appropriately.
Trustees have a duty to protect the charity they serve—making decisions in their best interest and promoting a positive reputation to the community.
If you would like further guidance on conflicts of interest and to stay up to date with changes in guidance and legislation, please follow Conflicts of Interest: A Guide.
