Navigating financial and loyalty conflicts in charity governance

Navigating financial and loyalty conflicts in charity governance

Sarah Furness, Employment Law & HR

Managing conflicts of interest within charities isn’t an easy task. There are two common types of conflict of interest: financial conflicts and loyalty conflicts.

Financial conflicts happen when a trustee, or person or organisation connected to the charity, could get money or something else of value from a trustee decision. Common examples include paying a trustee for doing their trustee role (more than their expenses) or employing or paying the trustee, or their relative, for some work at the charity, or selling or buying charity goods, services, or land to or from a trustee.

Loyalty conflicts happen when a trustee might not be able to make decisions that are best for a charity. Common examples include if a charity’s decision involves a person or organisation linked to a trustee. For example, a trustee’s employer or another charity where they are a trustee.

The following steps should be taken to ensure there are no financial or loyalty conflicts of interest:

• Declare conflicts of interest as early as possible when they arise, at the start of board meetings and have an up-to-date conflicts register.
• Introduce and follow a conflict of interest policy and follow any rules in your charity’s governing documents.
• Consider removing conflicts of interest so decisions are based only on what is in the best interests of the charity. Remember a trustee (or organisations or people connected to them) cannot benefit from a charity, unless it’s allowed by rules in the charity’s governing documents, the law or the Charity Commission.
• Follow any specific rules on managing conflicts of interests. Again, governing documents, the law and the Charity Commission are the starting point. As an absolute minimum, conflicted trustees must leave relevant discussions, must not take part in decisions or votes and must not be counted in the quorum.
• Keep a record of conflicts of interest and record what the conflict was, who or what it affected, when it was declared and how you managed it.
• If there are serious conflicts of interest related to commercial interests or significant financial or investment risks, legal advice should be taken.

Where trustee actions or failings present a serious risk to a charity, the Charity Commission is likely to regard this as mismanagement or misconduct and take regulatory action.

Please contact the team for further information and advice in respect of how to manage any conflicts of interest with your charity.