Conflict of interests... might be topical... again

Taking care, with “Conflicts of Interest”

Trustees have a duty to act in the best interests of the charity and its beneficiaries. They must avoid situations where their personal interests or their duties conflict with their duty to the charity unless they have been authorised. The duty also extends to conflicts that arise because of persons connected with them. 

Conflicts of interest can occur in many ways.

A conflict of interest can occur when a trustee stands to benefit personally from the charity - for example, if they or a connected person receive a grant from the charity as a service user or a payment for a professional service. 

Conflicts of interest may come in a number of different forms:

• direct financial gain or benefit to the trustee, such as:
• payment to a trustee for services provided to the charity
• the award of a contract to another organisation in which a trustee has an interest and from which a trustee will receive a financial benefit
• the employment of a trustee in a separate post within the charity, even when the trustee has resigned in order to take up the employment
• indirect financial gain, such as employment by the charity of a spouse or partner of a trustee, where their finances are interdependent
• non-financial gain, such as when a user of the charity’s services is also a trustee
• conflict of loyalties, such as where a trustee is appointed by the local authority or by one of the charity’s funders, or where a friend of a trustee is employed by the charity

Trustees cannot receive a benefit from the charity unless it is allowed under the law or by the charity’s governing document: such authorisation might involve approval from the Charity Commission.

A conflict of interest can also occur when a trustee has a conflict of loyalties between the charity and their personal or other interests – for example, if they are a member of a local authority that funds the charity or a trustee of a competing charity.

Any conflict of interest should be carefully managed. It is good practice for trustees to agree a conflict of interest policy record and regularly record conflicts in a register, and note them in board minutes.

Having a Policy makes it clear the parameters of authority and encourages transparency.

A conflict of interest policy sets out the procedure to be followed if a trustee declares an interest. It should include a register of interests where trustees disclose outside interests and those of connected persons that might potentially conflict with their role as a trustee.

If a trustee has a conflict of interest which creates a real danger of bias (or could be perceived to do so) they should withdraw from the relevant part of the meeting where the relevant decision is to take place.

The Companies Act 2006 brought in new statutory duties for trustees of charitable companies. These include duties to avoid conflicts of interest, not accept benefits from third parties and declare an interest in a proposed transaction. These duties include a duty to avoid conflicts of loyalty.

Trustees of charitable companies must ensure they are properly disclosing and authorising conflicts of interest in line with their statutory duties.

• Register of conflicts of interest
• Policy regarding how to deal with themⁱ

i The policy might include that the person with the conflict would not be able to discuss the item or not be able to vote on a decision relating to the conflict. Of course they could provide information to allow the remaining trustees to make an informed decision.