Conflicts of Interest & Loyalty

This month’s Governance Matters spotlight is on conflicts of interest and loyalty.

Would you be able to identify a conflict situation and ensure it is properly handled?

Conflict situations involving charity trustees (or those closely connected to them) trip up trustees and charities of all types and sizes.? Charity Commission case reports highlight how often this happens. They also show how badly handled conflicts situations result in poor decision-making and outcomes that are not in a charity's best interest or damage its reputation.

There are four steps to properly addressing conflict situations:

Step 1: Identifying conflicts

This needs to be done before a trustee is appointed and throughout their trusteeship. Conflicts of loyalty seem to be a particular blind spot for charity trustees.

Top tip: Ensure you identify both actual and potential conflicts. Remember to capture both conflicts of interest and conflicts of loyalty.

Step 2: Declaring conflicts

New trustees should complete a declaration of interests form before they are appointed, so conflicts can be spotted and vetted. Declarations should be updated annually. Conflicts also need to be actively considered at meetings and for any decisions or actions taken in between.?

Top tip: Properly handling a conflict is both an individual trustee duty and a collective board responsibility. If a trustee fails to spot or declare a conflict the Chair, CEO or fellow trustees should prompt them to do so.

Step 3: Preventing conflicts from affecting decision making

This could involve removing the conflict entirely or taking steps to neutralise it so that it does not adversely affect decisions being taken. Eliminating the conflict of interest or loyalty might involve the charity not proceeding at all or taking a route that avoids it entirely. If the unconflicted trustees decide the charity should proceed in a way that involves a live conflict all concerned need to be able to demonstrate how the conflict was handled to ensure decisions made were in the charity’s best interests.

Top tip: In cases of serious conflicts of interest or loyalty the unconflicted trustees may need to consider whether the conflicted person should be appointed or remain as a trustee.

Step 4: Recording conflicts of interests and loyalty.

The nature of any conflict, how it was handled and decisions made should be recorded. Charities should keep a list of related party transactions. Declarations, minutes and other relevant records should be retained.

Top tip: Check if the charity needs to disclose trustee benefits, expenses and related party transactions in its published accounts.

The Charity Commission has produced a range of guidance on handling conflicts of interest and a handy checklist to help charity trustees: