Can you say “Conflict of interest”? I knew you could

The Nonprofiteer should long since have drawn attention to a study released in June documenting the frequency of transactions between nonprofits and members of their Boards of Directors, particularly deals kept secret from other Board members.  Even assuming such insider deals aren’t automatically corrupt, any bookkeeper would note the need to keep track of them at least as carefully as we monitor disbursement of funds, for which we all require two signatures on every check (don’t we?). 

So lack of any conflict of interest policy at all at many nonprofits should give us pause.  Here’s one place where we can profit by the example of the business community, which permits self-dealing only under tightly controlled circumstances (unless, of course, it takes place at Halliburton). 

What’s almost more shocking than the lack or laxity of policies is the blithe dismissal of their importance by an agency whose task is to promote best practices in governance among nonprofit Boards.

Concern about such deals, however, might be overblown, said Marla J.
Bobowick, vice president of BoardSource, a Washington nonprofit group that
provides consulting services to boards of directors at charitable organizations.

Ms. Bobowick said nonprofit groups often save considerable money by buying
goods and services from companies that are connected to their board members
because the board members negotiate agreements at reduced rates. . . ."The organizations
I’ve known and seen get these things so far below the market rate that it’s an
in-kind contribution of sorts to the charity."

The Nonprofiteer’s own experience of an insider deal–which featured the purchase from a Board member’s employer of a $15,000 custom-designed data-base to handle record-keeping that could have been conducted with an off-the-shelf software package for about 5% of the cost–reminds us that anecdote is not the same as evidence.  Mere common sense dictates that significant temptations be curbed by equally significant safeguards. 

Any Board members who feel themselves unfairly deprived of business opportunities by a prohibition against self-dealing can always go elsewhere–say, to one of the far-too-many Boards not bothering to address the issue.  And good riddance.

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One Response to “Can you say “Conflict of interest”? I knew you could”

  1. Sam Davis Says:

    I heartily agree with the Nonprofiteer on this one. Boards should police themselves and the golden rule for that should be, “If you’re on the board, no special business deals with this nonprofit.”

    The nonprofit may choose to do business with a board member’s company when not doing so would be illogical. Example: a board member is a top executive of a national airline that consistently offers the cheapest flights. It would be silly not to use that airline.

    But it would be nefarious if the staff were instructed to use only that airline, especially when they might get a cheaper flight on another carrier from time to time.

    No special deals, but use common sense as well.

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