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This example illustrates a potential conflict of interest. How should it be handled? What other issues may be present? Some of the issues are reviewed at Discussion. Barbara is the executive director of a nonprofit corporation; Jim is a new board member and a salesman for an office supply company. |
Example
Jim: Barbara, I can't believe that we're paying that much for office supplies.
Barbara: We looked around pretty carefully. Non-profits don't get much of a discount.
Jim: My company can beat that price. It ought to be some good having me on the board of directors.
Barbara: That would be great.
Jim: I'll tell you what. If the organization will promise to purchase all of its office supplies from my company, I'll give you 25% below list price.
Barbara: Terrific! It will be the first thing on the board's agenda at the next meeting.
Jim: No, don't tell the board. If senior management of my company found out they'd kill me.
Barbara: But all contracts require board approval. The bylaws say so.
Jim has a conflict of interest. As an employee of the office supply store, he owes them certain duties and obligations. As a member of the board of directors, he owes the nonprofit corporation duties of loyalty and fair dealing.
The only appropriate resolution of a conflict of interest is full disclosure and board action, with Jim abstaining. See the discussion at conflicts of interest and review the discussion at the fiduciary duties of loyalty and due care.
The instinct to hide the problem - "No, don't tell the Board" - is almost always completely wrong. If Jim understood, he would insist that the disclosure and his abstention be entered in the minutes.
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