Charity trustees and conflicts of interest

“Today everything’s a conflict of interest” (Sid Vicious)

As perhaps in many ways, Sid Vicious was a visionary. Conflicts of interest within charities have become quite the hot topic, with the Charity Commission affording their proper identification, disclosure and management (or the lack thereof) particularly close scrutiny and all too frequently finding failings. Conflicts of interest will inevitably and unavoidably arise in the charity boardroom: what matters is that you recognise them and then manage them appropriately, to ensure that they do not affect your charity’s decision-making.

As a charity trustee, your legal duty to act only in the best interests of your charity includes the requirement to avoid a situation where your duty to your charity conflicts with your personal interests or your duty to another person or organisation. Conflicts may typically arise for example, through:

• Skilled and knowledgeable trustees being those who have gleaned their expertise through concurrent service on another relevant charity board or employment with another relevant charity
• Trustees being necessarily drawn from a finite number of people willing and able to contribute at board level (this can be particularly true of charities serving small, local communities)
• Trustees who are appointed by third party organisations, the interests of which may compete with those of the charity
• Trustees who are beneficiaries, or connected to beneficiaries of the charity
• Trustees who stand to derive some other form of personal benefit (such as payment for services) from the charity.

What am I looking for?

Failure to identify a conflict of interest is common. This is often not due to trustees’ lack of awareness of the concept, but rather because a situation has not been recognised as a conflict. A popular misconception is that a conflict of interests only arises where there is a dispute about the matter in question. But a conflict of interest is not limited in this way: a conflict of interest is inherent where a you, as a board member, wear two different hats (either yourself or through your close connection) and both hats have skin in the game of a particular discussion.

Why am I worrying about it?

As a charity trustee you hold a fiduciary position, which means that your role requires standards of trust and confidence which exceed simple honesty and good faith. You owe a duty of undivided loyalty to your charity’s beneficiaries and, if your charity has a corporate structure (such as a charitable incorporated organisation or a charitable company), you also owe this duty to the charity itself. The duty obliges you to avoid a situation where an interest you have, or may have, conflicts with your duty as a charity trustee. It also means that you must not profit from your role. The Charity Commission distinguishes between conflicts of interest generally and a specific type of conflict described as a conflict of loyalty: this is where a trustee’s loyalty or duty to another person or organisation could be considered to affect their ability to make decisions in the best interests of their charity. Even a perceived conflict can be damaging for the charity.

Serious consequences for breaching the rules can include findings of misconduct and mismanagement by the Charity Commission, the potential personal liability of the conflicted trustee if the conflict has resulted in loss to the charity and even possibly the setting aside of the affected decision.

What can I do?

First, identify, disclose and record each conflict of interest. Your charity should maintain an up to date register of interests disclosed by its trustees.

Then, when a conflict (whether previously disclosed or not) becomes relevant in respect of an item of charity business, the conflicted trustee must declare this (for example, in the meeting where the item is to be discussed) and the charity must record it (e.g. in the minutes). Although the board may permit the conflicted trustee to remain in the meeting for a time for the purpose of contributing information to the discussion about the item, generally the conflicted trustee should withdraw from the meeting while the relevant agenda item is discussed. They will not count in the quorum for that part of the meeting and will have no vote on that item. Adherence to this procedure must be noted in the minutes of the meeting.

Any express provisions about the management of conflicts of interest in your charity’s governing document need to be followed, but also supplemented and supported by a suitable conflicts of interest policy and procedure.

Note that sometimes it may be possible to authorise a conflict. This may be permitted by your governing document: take advice if you are unsure. It may also be possible to seek the Charity Commission’s authority to proceed notwithstanding an existing conflict.

Conflicts of interest are often unclear, misinterpreted or simply misunderstood and this can lead to unwelcome confusion, challenge and censure. Think about your other interests and those of people and organisations closely connected to you: have you disclosed everything relevant?

Do be sure to understand the relevant provisions in your governing document and check that you have a robust policy and procedure in place and that it is rigorously followed.

Don’t rely on a Trumpian view that there can’t be a conflict.

If you have any questions about the topics raised in this article, please get in touch.