How to Avoid Conflict of Interest Problems in Association Management

09 Apr How to Avoid Conflict of Interest Problems in Association Management

The effective management of conflict of interest issues is an essential element of sound risk management practices for both profit-making corporations and non-profit groups.  In order to preserve the integrity of an association and its governance, it is wise to avoid financial transactions, business dealings, and other influences that benefit a board member, regardless of whether or not they benefit the organization.

Unfortunately, conflicts aren’t always clear.

Because a conflict of interest is based, in part, on perception, it is vital to create policies that help navigate situations where ethical “shades of gray” could lead to different interpretations and actions.  That makes managing conflict of interest issues challenging for any board, even those with the best policies and practices.

In this article, we explore a variety of tests that association managers can use for assessing potential conflicts.  First, it is valuable to understand exactly what a conflict of interest means…

Defining a Conflict of Interest in Associations

Essentially, a conflict of interest defines a situation in which there is a conflict of the appearance of a conflict between the official responsibilities of a person in a position of trust (a board member) and his/her private interests.  Unfortunately, conflicts aren’t always clear.

Because a conflict of interest is based, in part, on perception, it is vital to create policies that help navigate situations where ethical “shades of gray” could lead to different interpretations and actions.

Testing for Conflicts of Interest in Non-Profit Associations

Best Interests Test – A key responsibility of non-profit association board members is to make decisions and act in the best interest of the organization they serve, regardless of the impact those actions may have on a board member’s personal best interests. When the interests of the organization and those of its board members, staff members, or constituents are in conflict, it is necessary to step back and reflect on the association’s focus, purpose, and priorities to determine the right course of action.

Peer Standards Test – Also referred to as an Industry Standards or Community Standards test, this approach to determining a conflict of interest asks, “Would this action be accepted by the general community we serve?” The problem with the Peer Standards Test is that it gives rise to the “Everyone’s doing it” defense.  As such, it is wise to apply the Peer Standards Test in conjunction with other assessment test.

Public Disclosure Test – Sometimes referred to as the Sniff Test, this test asks, “What will people say if this information were to become public?  How would the media, our stakeholders, the general public react? A perceived conflict can be just as damaging to an association’s integrity and credibility.  Therefore, determining the impact of a public disclosure of even a perceived conflict is a good barometer for whether a conflict actually exists

Reasonable Person Test – This assessment of conflicts asks, “What would a prudent, reasonable person do in these circumstances?”  It is an extension of a association board member’s statutory requirement to “exercise the same degree of care, diligence, and skill that a reasonably prudent person would show in comparable circumstances.”

The 4 Pillars of Successful Non-Profit Association Management

Every association should have a commitment to the four pillars of non-profit management:

Integrity
Transparency
Accountability
Predictability

The more board members openly discuss these issues, the better equipped the organization will be to deal with any conflicts of interest when they arise…and they will arise.

Therefore, it is important to promote discussions of challenging topics into non-profit association management culture, making it an ongoing part of reporting.  Some organizations start every board meeting with a time for members to declare possible conflicts.