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Managing conflicts of interest—what do trustees need to do?

Often seen as a ‘tick-box’ exercise, trustees should remind themselves of the importance of declaring and managing conflicts of interests, not only to maintain public trust, but to ensure compliance with the legal responsibility to act only in the best interests of the charity...

Managing conflicts of interest—what do trustees need to do?

The following summarises the Charity Commission’s Conflicts of interest: a guide for charity trustees (CC29), which should be read in full and as top tips for trustees.

To discharge their legal duties trustees should Identify conflicts of interestPrevent them from affecting decision making; and Record any conflicts and how they were handled.

1. Identify

A conflict of interest exists where there is the possibility that a trustee’s personal or wider interests could influence their decision making. Even if there is no actual conflict of interest, the trustees should be aware of how any perceived conflict can damage the charity’s reputation and consider this through their decision-making processes.

What are conflicts of interest?

They usually fall into two categories: potential financial or measurable benefit to a trustee or connected person (e.g. family/business partners/connected businesses) or a competing duty or loyalty owed to another person or organisation: 

Benefit

  • Benefits can include the selling, loaning or leasing of assets to or from the trustee; paying the trustee for their role/employing them or a spouse; paying a trustee/connected person for services to the charity.
  • Trustees can benefit in such ways, but only if there is explicit authority. Depending on the benefit, authority can be obtained from the charity’s governing document; statutory provision (e.g. Charities Act 2011); the Commission or courts.

Conflicts of loyalty

  • Here there is no measurable benefit, but conflict arises where a loyalty to another person/organisation could influence the trustee’s decision-making.
  • In some cases, the non-conflicted trustees may decide that the conflict poses no or low risk to decision-making and so the trustee may continue involvement in the discussion or decision (but only if the governing document allows the trustees to authorise in this way).
  • The trustees should be prepared to explain how they came to the decision.

Identifying conflicts - checklist:

  • If your governing document doesn’t include provision for dealing with conflicts of interest, consider amendment.
  • Have a Conflicts of Interest Policy in place. Annex 4 of the guidance can help assist drafting.
  • Have an Interests Register in place and review frequently.
  • Consider conflicts of interest at the trustee appointment stage. Prospective trustees should be invited to declare interests, to be reviewed by those deciding on appointment.

 2. Prevent: How to prevent a conflict from affecting decision-making

Declare all conflicts and potential conflicts of interest:

  • Ensure you have systems in place to highlight when positions of conflict may arise and the personal duty to declare.
  • Include these on every meeting agenda
  • Always err on side of openness
  • Inform the chair or other trustees if you become aware of an undeclared interest.

Serious conflicts should be removed by:

  • Not pursuing the course of action
  • Pursuing in a different way so as to remove the conflict
  • The conflicted trustee resigning
  • If trustees choose to go ahead despite the serious conflict, they should seek authority (above) or ensure that they can demonstrate that the decision is in the charity’s best interest

Withdraw from decision making where there is trustee benefit

  • If there is no legal or governing provision about managing this type of conflict, the benefit must be authorised in advance and the trustee in question excluded from any discussion or decision-making on the matter.

Withdraw from decision making where there is conflict of loyalty but no benefit

  • If there is no legal or governing provision about managing this type of conflict, the other trustees must decide what level of participation, if any, is acceptable and to decide whether withdrawal is in the best interests of the charity.

3. Record Conflicts of Interest

Keep written records:

  • Minutes of meetings; and
  • Register of interests

 Where there is a decision on a conflict of interest, the written record should show:

  • the nature of the conflict
  • which trustee(s) were affected
  • whether conflicts were declared in advance
  • a discussion outline
  • whether anyone withdrew from the discussion
  • how the decision was in the best interests of the charity.