Last week, we discussed fiduciary responsibility and what it meant to you as a board member. As I mentioned, fiduciary duty also requires the disclosure of any actual, potential, or perceived conflict of interest that may exist for a board member and so today I wanted to dig into that aspect of fiduciary responsibility a bit further. As a board member, you need to be aware of conflicts of interests that you as an individual may have and that individuals or organizations that your board is working with may have.
A conflict of interest is defined as existing whenever the interest of a board member is inconsistent with the interest of the organization. Conflicts of interest are often thought of as financial but they can take other forms as well.
What are some examples of conflicts of interest that can happen in a soccer organization?
- Scheduling tournament game times to benefit your child’s team
- Contracting with your brother’s landscaping company to maintain your Club or Association’s fields
- Using your personal business knowledge to buy cheap land to develop a field complex that could have been developed through the Club or Association if the organization had known about the opportunity
The last example is an interesting and overlooked type of conflict. As a board member and fiduciary, you are required to put the best interests of the organization ahead of any personal interests, including any transactions. If you are made aware of an opportunity that may benefit your organization (such as a lot for sale that could be a future soccer field site) your duty is to inform the organization and give the board the information needed to evaluate all options – basically, a right of first refusal.
Types of conflicts of interest can include:
- Financial, which are the most commonly identified (and generally easier to identify)
- Misuse of the organization’s property or information
- Materially benefiting from your position within the organization (including benefiting friends and family members)
- Acting for an adverse party (any party whose interests conflict with the organization’s interests)
- Competing with the organization (such as the field development example above)
Just because you think there may be a perceived conflict of interest with a business that your Club or Association participates in and your personal interests, does not mean that your organizations can’t do business with that person or group; you just have to follow proper procedure to ensure full disclosure and that the potential conflict doesn’t become an actual conflict. Prior to making any deals that involve a possible conflict of interest, the interested board member and the board must:
- Disclose to the entire board any potential conflict of interest and give the board all knowledge of material facts and the board member’s interest.
- The board must conduct a reasonable investigation and find that the organization could not make more advantageous arrangements (this may entail doing a “bid” process for any contract work for things such as award ordering).
- The board votes in good faith to approve the deal by majority without the interested director participating in the vote.
Once these steps have been taken and the board is satisfied that the potential conflict of interest is not evident, and therefore not a conflict of interest that negatively impacts the organization’s interests, the organization can move forward with business.
Dealing with a potential or actual conflict of interest sounds scary, doesn’t it? We take it personally and worry that we can’t make any decisions without finding some sliver of conflict. Being a fiduciary of an organization is a serious responsibility that can put you into the position of having to put the organization’s interests in front of your personal business or family interests, but it’s also a testament to the investment that you are making in your Club or Association – you are trusted with leading your soccer community to reach its fullest potential through sound decision-making.
The best way to prevent any potential issues with conflicts of interest in your Club or Association is to be as transparent as possible in all decision-making processes. Put a statement about conflict of interest in your bylaws. Ask board members to submit a conflict of interest disclosure form each year, with the understanding that the information is confidential to the boardroom. Document how your Club or Association makes business decisions. Transparency is the key to a healthy organization and a happy membership.
What are some conflicts of interest that you have seen in your board experience? What questions do you have about conflicts of interest? How does your Club or Association handle conflicts of interests?