The IRS wants to know about your policy. Funders and donors want to know that you have a policy on them -- as if having words on paper would prevent them. And you may have a lengthy policy on them in your board and employee handbook already. But can everyone covered by the policy explain it clearly in 10 seconds?
In my experience, one of the problems with the whole phrase "conflict of interest" is that it comes out of the legal world, and like most legal terms of art (which is itself a, um ..., term of art) it packs whole volumes of meaning into a few words, but much of that meaning is lost in the distillation down to a few words. As always with jargon, you pretty much have to be in the club to understand it, or have a club-member explain it to you. Maybe that's why such a difficult phrase doesn't get replaced with one that is easier for the average nonprofit board member or staffer to understand.
The Biggest Thing to Know: You can have a conflict of interest problem without any conflict!
I think the worst part of the term "conflict of interest" is that it inescapably suggests that a nonprofit director or staff member needs to be alert for "conflicts" -- which suggests that there's no problem if "everyone is on the same page" or "everyone agreed" or "the person with the conflict didn't participate."
Indeed, the worst conflicts of interest may be the hardest to spot because they hide behind a mask of disinterested consensus.
The classic "simple" conflict that is easy for most people to spot is where the group is considering a decision -- say, a board member or a staffer argues for changing the marketing program budget to add the purchase of an expensive ad in a high school yearbook -- that will also happen to benefit this individual or someone close to them (such as if the board or staff member advocating for the change has a grandchild who attends the school).
Most people don't have much problem spotting that as a clear conflict of interest. And most would agree that it's improper for any director or staff member to advocate for revising the budget to help someone they care about.
But most people DO struggle with is realizing that it's easy for there to be "conflictless conflicts of interest."
Say, in the example above, the board member whose grandchild attends the high school seeking ads for their yearbook is careful to avoid doing or saying anything to encourage the nonprofit to take an ad. But another board member -- knowing that Grandma or Grandpa will never raise the issue, because of the conflict -- suggests that the nonprofit take an ad in the yearbook. A motion is made and there is unanimous approval of all the other directors, so there is no obvious conflict: there was simply a unanimous vote by all the disinterested directors to take the ad. End of problem, right?
Nope - because whether Grandpa or Grandma recuses themselves or not, if everyone knows that they have a grandchild who stands to benefit from a decision by the board, then it's easy for the same decision to get made, with only the appearance of impartiality.
In many nonprofits (including especially government agencies, the ultimate nonprofits), a culture of permissiveness develops, where each person with influence or decision making power tacitly agrees to "cover" for each other by being the one to suggest things that the others could not. So I'll propose the spendy ad go the high school yearbook where your grandkid goes, and you'll agree to reciprocate - maybe explicitly, maybe not - by always supporting the pet program I started and seek funding for each year, even though it's not really your idea of a good program.
It's hard to put a number on it, but I would guess that there is at least a hundred times greater problem with "conflictless conflicts" in nonprofits than there is with overt, recognizable conflicts.
People who work in nonprofits or serve on nonprofit boards are often conflict averse, for one thing, and the culture of many organizations, such as churches and human services nonprofits -- where healing the wounds of others is paramount -- can often lead people to think that "playing nice" is the most important thing . . . meaning, "avoid conflict." And nothing ramps up tension and conflict faster than asking a question that suggests that someone else has divided loyalties.
That's why it's essential for a healthy organization to have really robust discussions about conflicts of interest whenever new people join the board and among senior staff, and regularly when there is no turnover. Because if you wait for a conflict to be noticed to start the discussion, you are likely to find it a heated or at least very strained and unproductive one.
The bottom line is that the phrase "conflict of interest" is only one type of the problem that arises when people have divided loyalties. And the solution can't be that each staffer and board member can only have one main interest -- while nonprofits need some leaders who are intensely passionate about the cause, they also need leaders who are well-connected to other causes and organizations in the community -- and well-connected people are exactly the kind of people who can easily find themselves struggling with these divided loyalty questions.
Rather than imagining it is possible to find people who have no possible divided loyalties in any area, the better solution is to make the whole issue less important.
You do that with good policy, policy that requires that, as one of the first steps in each decision process, that the people who will be evaluating the program or activity define what criteria they will use to evaluate its success or failure.
So instead of picking where the advertising budget goes based on suggestions from board members, first decide the target market, the budget, and the desired outcome (number of impressions for each dollar spent, etc.) and how the impressions will be measured. Assuming fair criteria (not chosen to make a certain outcome more likely) , this can "neutralize" conflicts easily, and everyone can help develop them, regardless of any connection they may have to particular advertising media.
There are very few significant decisions facing a nonprofit where a little advance homework by the relevant committee (or by the whole board in smaller nonprofits) can’t produce a pretty good list of neutral criteria for evaluating the available alternatives. Boards that get in the habit of deciding how to decide before deciding things don’t just make better decisions; the board members also enjoy serving on the board more, because they don’t have to tip-toe around the uncomfortable issues and personality conflicts that always arise when decisions are made on the basis of good old American “know who” instead of good “know how.”