Conflicts of Interest
By Patricio Figueroa, Jr.
Boards of directors of not-for-profit organizations (NPOs)
and for-profit corporations are frequently engaged in defining conflicts of
interest. And from state to state, there are slight variations of what those
are. There are also different types of conflict of inerest, some very
egregious, others that don't even rise to the level of an insult.
The widely used definition of conflict of
interest goes something like this: a situation in which someone in a position
of trust, such as an executive director of not-for-profit or a chief executive
officer of a corporation , has competing professional or personal interests.
The emphasis is on the latter part of the definition.
In college, I heard the old joke that
conflict of interest was the equivalent of "seeing your mother-in-law drive off
a cliff with your brand-new Cadillac." As tragic, conflicting and personal as
that sounds, it best describes what psychologists would call "cognitive
dissonance," anxiety that results from simultaneously holding contradictory or
otherwise incompatible attitudes or beliefs. The connection between cognitive
dissonance and conflict of interest may include attitudes and beliefs, and also
the awareness of one's behavior.
Avoiding conflict of interest involves
management and the responsibility of being objective in protecting the public
interest, putting aside personal motives and inclinations, and keeping all
decisions transparent. An example would be an executive director in need of a
good accountant. That director has a brother who is an experienced accountant
but who is unemployed, and he knows the board would not approve the hiring for
fear of "collusion" -- and rightfully so.
The public's trust, transparency and
avoidance of any appearance of impropriety are crucial to NPOs.
Everyone involved in an NPO must keep in
mind that an overriding criterion for certification as a charity is that no one
may benefit (financially or personally) from being involved in a management or
oversight position. Obviously, employees, including the chief executive
officer, may be compensated at a "reasonable level." But it is illegal to gain
financially by serving on the board or management.
A type of conflict of interest that
commonly occurs involves engaging an attorney or accounting firm that has an
individual on the board of directors of the organization. In the event of a
settlement, however, the board member or his firm may gain financially. This
means that this attorney's firm, and possibly the attorney board member, will
beneft from serving on the NPO's board.
I have seen this with NPOs that do
advocacy in special education. A board member is an attorney who volunteers to
pursue litigation on behalf of the organization. When the case is over, the
attorney or his firm often benefit from the publicity generated by the case and
may also win attorney's fees, or a portion of the settlement. This is not
legal. To give board members of NPOs compensation, as in one case I discovered,
the organization was paying for a health insurance plan for board members. This
was also found to be illegal.
While NPOs are allowed to earn a profit,
more accurately called a surplus, such earnings are retained by the
organization for its future provision of programs and services and are not
owned by or distributed to individuals or stakeholders.
Whether it has stakeholders (NPOs) or
stockholders, the goal of both types of entities is identical: to increase the
wealth of the organizations involved.
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Patricio Figueroa, Jr. is an artist, author, advocate and co-founder of
Independence Today. He was also the first director of a center for
Independent Living (CIL) in New York state. |
