A common suggestion for effective networking is “Get involved.” So we join organizations and nonprofit groups with the hope that, as we serve in a leadership capacity, we are also piquing the interest of others who might want to use our services–or be willing to refer us to others who do. When the opportunity does come to deliver our services on a paying (rather than volunteer basis), it can seem like we’ve hit “pay dirt.”
But these kinds of opportunities are not as straightforward as they look. Board members in particular need to make sure that, if hired, they have followed the laws of their state concerning the conduct of nonprofit organizations.
Let’s say your business provides web design services. You serve on the board of your local chamber of commerce. The chamber happens to need a new website, and hires you to design and host it–for a fee.
Those kinds of transactions are known (not surprisingly) as “interested transactions” because the board member (you) has a financial interest in the outcome. Under many state laws, if a board or committee member has any financial interest in a business opportunity being presented to the organization, that financial interest should be disclosed to the board. This is different (although related) to having a “conflict of interest.”
Ideally, when you serve on a board, you put the interests of the organization ahead of your own. It’s in the organization’s interest to get the highest quality web design services at the lowest possible price. It’s in your interest to get paid as much as possible for providing the web design services. Therein lies the conflict.
The “conflict” doesn’t arise in performing the services; it arises when the opportunity is presented to the board. If you receive a financial gain but your proposal has been vetted fairly, there’s been full disclosure of the financial interest and the proposal has been deemed in the objective best interests of the organization to pursue (with other members having had the fair opportunity to participate and offer proposals of their own), it’s not a conflict. However, you will have to recuse yourself from the voting when the proposal comes to the board for a vote.
To protect yourself (and the organization), make sure there are minutes of the meeting where your proposal is discussed and a record of the vote taken.
This entry was posted on Thursday, June 26th, 2008 at 9:53 am and is filed under Contracts, Partners and Alliances. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.2 Responses to “Doing Business with a Nonprofit Organization When You’re on the Board”
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June 27th, 2008 at 2:09 pm
If you are looking for more information related to Conflicts of Interest and Nonprofit Boards, you can go to our web site http://www.boardsource.org. The article at http://www.boardsource.org/Knowledge.asp?ID=3.389 specifically addresses the issue.
Full Disclosure: I am an employee of BoardSource.
June 28th, 2008 at 9:54 pm
This is a great explanation. I would just add that your organization’s bylaws should state how to handle such situations and your bylaws govern. For example, if your bylaws state that there can be no such transactions, there can be no such transactions regardless of the attempt to be transparent as recommended above.
Of course, bylaws may be changed. Following the suggestions above will stand your organization in good stead. You might just also consider asking the interested party to leave the room during discussions, lessening the chance that he or she will unduly influence the other board members. If the board needs additional information before voting, he or she can always be brought in to answer specific questions.
Terrie Temkin, Ph.D.
CoreStrategies for Nonprofits, Inc.
http://www.CoreStrategies4Nonprofits.com