Tuesday, March 16, 2010


In recent days the Chronicle of Higher Education has been clucking over the conflict of interest egg. Many kinds of ethical lapses affect nonprofits - and by no means just schools and universities - but one of the more problematic is conflict of interest in the boardroom. It is widespread and has probably been around as long as there have been boards. You might say conflict of interest is endemic to the human condition.

It is not uncommon for nonprofit trustees to have business relationships with the institutions on whose boards they serve. The universal rule, and now a requirement of the new Form 990, is actual disclosure. Investment advisers, lawyers, builders, printers and insurance brokers are among the occupations I've seen among board members. On the face of it one might say if the conflict is disclosed there is ipso facto no conflict.

However that is too simple. Often in these situations contract letting, RFPs and other common procurement practices to which non-board members and anyone else is subjected are overlooked. There is no question that the trustee usually has an inside track. What he or she charges for services may or may not be competitive and he or she may or may not be competent. Organizations mount a meager defense when they say "a trustee will recuse himself/herself when something arises that may affect that person. This is the nod-and-wink defense. The recusal usually comes at the moment of the vote and for the very reason the conflict has been "disclosed" it's perfectly okay to vote for your friend.

Another problem I've encountered is the tender issue of trustee conflict and the staff's role. It is near impossible for a staff member to challenge a trustee and few will choose to go to the mat unless the conflict is truly egregious or unless real and possibly litigious harm can be done.

An act that is legally permissible may be ethically promiscuous. I'm much afraid that despite all the talk about "best practices" and "transparency" the disclosed conflict is a license to continue the behavior. On the other hand the disclosed conflict is slightly less objectionable than the undisclosed and there is still some of that too.

In an ideal world the board should be hands-off. Some money might occasionally be saved by using the discounted services of a trustee (when that is even the case) but the cost to brand and reputation is no bargain.