Conflicts of interest are commonplace in the charity sector. Trustees have a duty to act in the best interests of the charity but sometimes personal interests can clash. This can lead to decisions being made that don’t reflect the interests of the charity and can even damage reputation or erode public trust. Identifying conflicts of interest and understanding how to make the right choice is vital. The Charity Commission has published detailed guidance on managing conflicts of interest.
Key principles of decision making
Trustees must have regard to the following principles when making decisions and must be able to show how they have complied with them:
- act within their powers
- act in good faith and only in the interests of the charity
- make sure they are sufficiently informed
- take account of all relevant factors
- ignore any irrelevant factors
- manage conflicts of interest
- make decisions that are within the range of decisions that a reasonable trustee body could make
How to Identify a Conflict of Interest
A conflict of interest arises where there is the possibility that a trustee’s personal or wider interest/loyalties could, or could be interpreted to, influence the trustee’s decision making.
Individual trustees should always declare any conflicts of interest which affect them.
Conflicts of interest relate to a trustee’s personal interest and the interests of those connected to them. This means that there is a conflict of interest where there is a proposed transaction between the charity and a connected person. Likewise, there is a conflict of interest where there is a benefit or a potential benefit to a connected person. Similarly, a trustee’s duty to the charity may compete with a duty or loyalty they owe to another organisation or person. The Charity Commission’s guidance is very helpful in relation to the identification and management of conflicts of interest.
Prevention is better than cure
When a conflict of interest has been identified, trustees must consider the issue of the conflict and how to prevent an impact on decision making.
In cases of serious conflicts of interest it may mean the trustees deciding to remove the conflict by:
- Not pursuing a course of action
- Proceeding with the issue in a different way so that a conflict of interest does not arise; or
- Not appointing a particular trustee or securing a trustee resignation.
Where a conflict has been removed or identified, trustees must:
- Follow any specific requirements in the charity’s governing document or in the law
- Declare their interest at an early stage and in most cases withdraw from relevant meetings, discussions, decision making and votes; and
- In exceptional circumstances seek the authority of the Charity Commission to demonstrate they have acted in the best interests of the charity.
Recording conflicts of interest
Trustees should always formally record any conflicts of interest and how they were handled. This helps demonstrate accountability and that trustees have acted properly and complied with the principles of decision making.
If your charity would like advice on managing conflicts of interest please contact our specialist charity team.
Olivia Miller is a solicitor and member of the charity team. If you need advice on the issues raised in this article or require any further information please get in touch on 01872 265100 or email email@example.com