Every nonprofit wants to get its name in the papers as much as possible. But if you have a conflict of interest or the appearance of one, you may find yourself getting the wrong kind of press entirely. That’s one reason why a conflict-of-interest policy is essential for every nonprofit. Here are the three main types of conflict and how to react to them:
- Nepotism. Hiring, promoting, or otherwise favoring a family member unfairly. There is no law against hiring a family member, but the person who is hired should be the most qualified person for the position. If you don’t think you can be impartial or if you want to avoid the appearance of impropriety, consider recusing yourself from the hiring process. Otherwise, you risk a lawsuit from the person who was passed over.
- Business relationships. Many roles at nonprofits are part-time, and many part-time nonprofit employees have other part-time jobs in the same field. That means they may have to deal with companies they work for or hold stock in and may have trouble treating their other companies impartially. For example, it makes sense for an environmental group to hire people who work or have worked in chemical production but not to assign those people to inspect job sites run by their other companies. Keep them away.
- Self-dealing. Self-dealing can overlap with business relationships, and nonprofits are vulnerable to it for the same reasons. Specifically, however, it means using one’s role at the nonprofit to leverage power in order to make money. For example, a company that runs homeless shelters may hire someone who has worked in real estate in its area. However, if that person buys property on behalf of the company from a real estate company in which he or she owns stock, he or she is self-dealing. The nonprofit not only loses money this way (since it isn’t buying the best or cheapest available building) but also leaves itself open to bad press and lawsuits. Insider trading — the buying and selling of stocks based on restricted information — is also a type of self-dealing.
Conflicts of interest can cost a business money and opportunities and damage its reputation. However, a few best practices can protect you from common reasons for the appearance of a conflict of interest. Since the issue can be subtle, consider getting professional advice if you’re unsure in a particular situation.
To learn more about how our firm can serve your nonprofit organization, don’t hesitate to contact Kathy Corcoran at (302) 254-8240.
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