Conflict of Interest?
March 4, 2012 2:47 PM   Subscribe

Stupid question: is this a real conflict of interest?

Mr A is chairman of both group B and group C. Both groups are unincorporated nonprofits which work to benefit the same community but in different ways. Mr A has written on behalf of group B requesting a specific donation of funds from group C, which totals up to 10% of group C's funds.

Some members of group C have protested that this is improper, but Mr A has maintained that:
1) he does not stand to benefit personally from this donation,
2) the interests of both groups are essentially the same and so voting for a transfer of funds to group B is actually not against group C's interest, and
3) he can maintain an open mind, and besides group C has no written policy on conflict of interest so he is free to vote regardless.

I'm pretty indignant and feel this is little more than a cash grab by the chair to fund a pet project, but I would like an independent opinion. Any experience or knowledge is welcome.
posted by Jehan to Law & Government (21 answers total)
 
Is the project proposed to be done by group C not an efficient use of funds? If so, than the conflict of interest is not important - the mismanagement of funds is.

Is the project proposed to be done by group C not the best use of funds - in other words, is there a better project for group C to do? If so, than the opportunity cost here should be the focus of your complaint, not the conflict of interest.

Take a step back - if this wasn't being requested by Mr. A, would you feel the same way about the request?
posted by saeculorum at 2:55 PM on March 4, 2012


That sounds fine to me. I've even written grant proposals to organizations that I worked for. As long as everything is in the open and your SO has been entirely forthright in the proposal in terms of who will be doing the work etc there is no problem. The grant selection committee is free to disqualify, consider or fund the application as they would any other. They may choose to disqualify it, certainly. He should definitely recuse himself from the voting or discussion on that specific proposal as part of his role at C, they'll probably ask him to but if not he should do it voluntarily.

It only gets into a gray area if there is misrepresentation or discussion of the proposal outside of what would be normal for that grant application process.

This is a common thing in the non-profit world where people may serve on numerous boards, committees and partnerships. If it's never come up before it probably will again. They could turn to a more experienced non profit for guidance to come up with a policy for the future.
posted by fshgrl at 2:57 PM on March 4, 2012 [2 favorites]


Totally a conflict of interest, which is why -- as fshgrl says -- Mr. A needs to recuse himself from the decision process in group C.
posted by Etrigan at 2:58 PM on March 4, 2012


One of the basics of business ethics is to avoid not only conflicts of interest, but also the appearance of conflicts of interest. He should recuse himself from the decision-making process, even if he isn't technically required to.
posted by qxntpqbbbqxl at 3:00 PM on March 4, 2012 [5 favorites]


There is certainly a potential conflict of interest here. Whether this becomes an actual conflict of interest depends on how the chair manages his part in the decision-making process of group C. In order to avoid any actual (or even perceived) conflict, he should take no part in the discussion of the request or the decision-making about the request. Ideally, he should excuse himself from any meeting of group C that discusses the request, but this is more to ensure that there is the appearance of neutrality than anything.

The fact that there is no 'written policy on conflict of interest' is irrelevant. Proper governance requires that decision-making is free of the taint of any perceived, potential or actual conflict of interest.

I work in government, where this stuff comes up all the time and I'm on the board of a non-profit that operates in an area where there is some cross-over with my 'day job', so I'm used to managing these conflicts. As long as he is up-front about the situation, a formal declaration of conflict of interest is made and recorded in any minutes and he takes no part in any portion of the decision-making process (including discussion of the merit of the request), there is no conflict.
posted by dg at 3:00 PM on March 4, 2012 [4 favorites]


He should definitely recuse himself from the voting or discussion on that specific proposal as part of his role at C, they'll probably ask him to but if not he should do it voluntarily.

It should be clear that Mr A fully intends on voting on this donation, despite requests to recuse himself. He also holds a casting vote as the chair of group C.
posted by Jehan at 3:00 PM on March 4, 2012


"Both groups are unincorporated nonprofits" - That pretty much precludes any but the most liberal of definitions for 'conflict of interest' applying.
posted by Ardiril at 3:01 PM on March 4, 2012


Sorry, I mean "I should make it clear..."
posted by Jehan at 3:02 PM on March 4, 2012


It should be clear that Mr A fully intends on voting on this donation, despite requests to recuse himself. He also holds a casting vote as the chair of group C.
This would have been useful to know up-front ;-)

There is a clear conflict of interest here. Absolutely no doubt about it. Regardless of what his motives are or the validity of the request, for a person making a request on behalf of another organisation to vote in favour of the request (and, potentially, to vote twice by using his casting vote) is absolutely wrong.

The fact that the organisations are unincorporated is not a valid reason to practice appalling governance. If there is any public funding involved in this scenario, he is putting that funding (and any future funding) at serious risk.
posted by dg at 3:08 PM on March 4, 2012 [3 favorites]


It should be clear that Mr A fully intends on voting on this donation, despite requests to recuse himself. He also holds a casting vote as the chair of group C.

I can see why people are uncomfortable with that. That is a conflict of interest; to spell it out: at the time he's casting his vote he will not acting solely in the interest of Group C which he should be. He will also be representing the interests of Group B. Not OK, and if this money comes from a higher grant source (federal or private foundation) or from private donors those kinds of shenanigans may well get everyone into trouble with them too.

If I were one of his fellow board members I would likely resign before the vote if he refused to recuse himself. Or call for a vote asking for his resignation.
posted by fshgrl at 3:11 PM on March 4, 2012 [3 favorites]


saeculorum's tests are the key here. If either of them fail, then the board is in breach of its fiduciary duty for the resource it manages. The Board of C must hear your objections, and must minute them. If, despite your efforts, the chair's position wins, the right thing to do is step down from the board, as you cannot continue in good conscience.

The lack of a written policy on conflict of interest does not make it go away. To me, the conflict of interest is very clear. Unfortunately, I've been on boards where the Chair ran the group as a fiefdom, and no chair can question the right management of funds, since board members will be responsible for any loss.
posted by scruss at 3:19 PM on March 4, 2012 [1 favorite]


Not a conflict of interest. Mr. A has no personal financial interest. From a legal standpoint how does he as a person gain financially from this? He does not. The "interest" in a conflict of interest is always a personal financial interest.
posted by Ironmouth at 3:19 PM on March 4, 2012


The "interest" in a conflict of interest is always a personal financial interest.

Legally speaking, this is not the case. Judges often recuse themselves without any financial interest whatsoever (e.g. Justice Kagan in the Arizona immigration case). Ethically speaking, it is not even close to the case.
posted by Etrigan at 3:30 PM on March 4, 2012 [2 favorites]


A conflict of interest is not only about money, nor is it only about potential personal gain. A conflict exists where a person's personal interests (which includes interests of individuals or groups the person associates with) coincide in any way with the decision being made.

Resigning from a board (if you are a board member) in this sort of situation is not very productive, in my opinion. Better to vote against the proposal (and make sure the votes are recorded, including how each board member voted) and make it clear that you will publicise the corrupt decision-making if the proposal is approved because of the chair's votes will likely make other board members nervous enough about their own reputations to think twice about voting in favour.
posted by dg at 3:39 PM on March 4, 2012


This is absolutely a conflict of interest and needs to be taken very seriously by the parties involved.

Some individuals serve as directors of more than one non-profit organization. If two organizations with the same director engage in transactions, the interlocking directorate may taint the transaction with conflict-of-interest and create a presumption that the transaction is unfair. A director is considered to have an indirect interest in a transaction if (a) another entity in which he or she has a material financial interest or in which he or she is a general partner is a party to the transaction or (b) another entity of which he or she is an officer, director, or trustee is a party to the transaction and the transaction is or should be considered by the board of directors of the organization. In this situation, the director should make the disclosure to each organization and obtain the authorization, approval, or ratification described above. -- a nonprofit law guide

Not a conflict of interest. Mr. A has no personal financial interest. From a legal standpoint how does he as a person gain financially from this? He does not. The "interest" in a conflict of interest is always a personal financial interest.

Hate to argue with a lawyer here, but as I understand it, being a donor to or director of a non-profit is a material financial interest even if it does not involve personal financial gain. It's a conflict of fiduciary duties.
posted by dhartung at 3:55 PM on March 4, 2012 [7 favorites]


Yes, it's a conflict--and for *another* reason not yet mentioned.

Many non-profit boards require that members give money to the organization or fundraise some set amount in order to remain on the board--this is usually referred to as a give/get. If the chairman in question is fulfilling his give/get at organization B by asking for money from organization C, then he is using C's funds for his personal gain. That's a massive no-no.
posted by yellowcandy at 4:35 PM on March 4, 2012 [3 favorites]


I wonder what your local newspaper would do with this sort of information. There's your answer. If your spidey-sense is tingling, it's probably right. Any sense of impropriety should be avoided completely. These always come back to haunt at later dates, no matter how "above board" they are handled.
posted by halfbuckaroo at 6:31 PM on March 4, 2012


This is absolutely a conflict of interest and needs to be taken very seriously by the parties involved.

Some individuals serve as directors of more than one non-profit organization. If two organizations with the same director engage in transactions, the interlocking directorate may taint the transaction with conflict-of-interest and create a presumption that the transaction is unfair. A director is considered to have an indirect interest in a transaction if (a) another entity in which he or she has a material financial interest or in which he or she is a general partner is a party to the transaction or (b) another entity of which he or she is an officer, director, or trustee is a party to the transaction and the transaction is or should be considered by the board of directors of the organization. In this situation, the director should make the disclosure to each organization and obtain the authorization, approval, or ratification described above. -- a nonprofit law guide

Not a conflict of interest. Mr. A has no personal financial interest. From a legal standpoint how does he as a person gain financially from this? He does not. The "interest" in a conflict of interest is always a personal financial interest.

Hate to argue with a lawyer here, but as I understand it, being a donor to or director of a non-profit is a material financial interest even if it does not involve personal financial gain. It's a conflict of fiduciary duties.


No. First, if the action is not materially adverse to both organizations, then there is no fiduciary conflict. Read the statement. It says there should be disclosure and a vote. If you read the question, that's already going on here.

Second, donating to something does not create a fiduciary duty.

Third, if Mr. A has the votes, it passes. There is no conflict of interest in a legal sense if there is no pecuniary interest. This guy is suggesting this. He gains nothing personally from it, there is full disclosure and there will be a vote.
posted by Ironmouth at 9:39 PM on March 4, 2012


Ironmouth, applying funds from one organization towards another organization's give/get obligation is, in some cases, explicitly banned by non-profit boards. The reason: It represents a material gain (in the form of reduced financial obligation) to a board member. Say what you will about duty, but this is a conflict.
posted by yellowcandy at 10:12 AM on March 5, 2012


I didn't and don't see this as primarily a legal question, it's one of governance. I have no idea if this would be legal or otherwise in the US (or anywhere else), but I do know that there is an absolutely clear conflict of interest if the chair goes ahead with his intention to participate in this decision. As chair of the proposed recipient organisation, he has an interest in the funding being approved. As chair of the proposed funding organisation, he has an interest in ensuring that funds are used in the best interests of that organisation. There is no way he can participate in this decision without a conflict of interest. It's an appalling way to act and the other board members should not stand for it.

Also, if either or both organisations are receiving public funding, that funding is being put at risk by this action.

If the proposal is sound, it will be passed with or without the chair's votes.
posted by dg at 2:03 PM on March 5, 2012 [1 favorite]


I investigated this shit for the Australian Government for five years - little groups of non-profit NGOs, run by boards of convenience, people simultaneously directing multiple entities, often in the same meeting (Whaddya reckon, Jones? Lend me a grand? Why, if you say so, Jones. We're all in this together!)

Of course it's a conflict of interest. Allowing this sort of shit to go on creates incentives for all sorts of evil fuckery. This guy sounds like an evil fucker (there's no written policy? are you kidding me?), so it's not really surprising.
posted by obiwanwasabi at 1:34 AM on March 6, 2012 [1 favorite]


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