Founding Board Members with Obvious Conflicts of Interest
Filed under Board/Staff Relationship · Tagged: board members as suppliers, board members with businesses, conflict of interest
Hi – Can you help me? I am the founder of a nonprofit organization that is recruiting initial board members for this new organization. We don’t have employees and it will probably be quite a while before we do. I will serve as the organization’s Executive Director – and I will be on the board with no voting power.
One of the women interested in joining our board is a perfect candidate because she has so much experience in our industry. However, she is also in the process of opening up a “for profit” business that could become a supplier to our organization once we are up and running. Her business could volunteer a service to us, she could be a regular donor to our organization, but she would ultimately also profit from the referrals we send her. We’d really like her as a founding member on our board participating in all of our board meetings.
What do you think about this idea? Can we legally have her on our board and does this make a conflict of interest in any way? She would gladly take one of the board positions.
Thanks for this question. You have a complex situation here. My short answer is that you can have this woman on your board, but I wouldn’t.
As you know, a potential conflict of interest arises when a board member stands to gain (financially) from the decisions that are being made by the nonprofit. Your situation is exactly this. If this board (with this perfect candidate )is making decisions that could increase her profits, her decision-making as a board member could be compromised because she stands to gain from voting a certain way. She might not be making decisions in the nonprofit’s best interests – but instead she might be voting in a way that is in her own best interests.
Having said that, in most states, conflict of interest is not a problem as long as it’s foreclosed to other board members. If they are AWARE that she stands to gain by her decisions as your board member, AND she excuses herself from voting in instance where she stands to gain, then it is not a problem.
In your case, as your org is still new and young, I would worry not only about the actual legal issues here – but the APPEARANCE of what you are thinking about doing. How will the other board members be influenced by her presence – knowing that she stands to gain by certain decisions? How will other donors that you might want to attract feel if they know that she’s on your board and she’s starting her own business that will be working hand-in-hand with yours?
I hope this helps.
Also, at my web site at the page below, you can download a free copy of a conflict of interest statement and policy that might help you.