Conflict of interest

Having a conflict of interest does not necessarily mean that anyone has acted improperly. As charity trustees you all have a collective responsibility to manage conflicts of interest and to act clearly in the charity’s best interests.

There are four key steps to dealing with conflict of interest. 

1. Identify:

• Have a conflict of interest policy so that all the charity trustees (and potential charity trustees) understand what could be a conflict of interest.
• Know what the charity’s governing document says about conflicts of interest.
• Set up a register of interests for all charity trustees and make sure it is kept up to date.
• Have conflict of interest as a regular agenda item at the beginning of the charity trustee meetings.
• Declare any potential conflict of interest as soon as you become aware of them.

2. Manage:

• Have clear procedures in place that state what should happen if there is a conflict of interest and how the charity trustees will deal with it. For example, the conflicted charity trustee might withdraw from the meeting or part of the meeting.
• If the charity has a conflict of interest policy make sure it is applied in all situations where there is a conflict or potential conflict. The policy should also distinguish between the two different types of conflict, ‘appointment conflicts’ and ‘personal conflicts’.
• Decide if the person(s) with a conflict of interest should be involved in any discussions or decisions about the situation – if it is decided they should be involved be prepared to justify that decision.
• Where there is a conflict, make sure that decisions are taken in the charity’s interests.
• Make sure that your charity can still carry on its business and still form a quorum even if a number of charity trustees have to withdraw.

3. Record:

• Keep a written record of the situation and what the charity did about it, including:
  • Recording who the conflict affected.
  • Recording when the conflict was identified and declared.
  • Recording what was discussed and decided.
  • Recording who withdrew from the decisions and how the remaining charity trustees made a decision in the best interests of the charity.
  • Maintaining the charity’s register of interests.

4. Learn:

• Learn from the experience, make improvements to the charity’s policy and procedures and where necessary seek professional advice.
• Where conflicts of interest arise frequently and a number of charity trustees must withdraw from discussion, the charity should consider whether the make up of the Board is preventing the effective management of the charity.
• Make sure the charity’s governing document has the power to remove charity trustees who are in serious or persistent breach of the 2005 Act.

If members from a linked organisation dominate the make-up of your Board of charity trustees this can lead to a risk of recurrent conflict of interest. How you manage this risk is very important. 

 A conflict of interest policy should set out:

• What a conflict of interest is and the conflicts that are likely to be relevant to your charity.
• The distinction between a “personal” conflict and an “appointment” conflict.
• When and how the charity trustees should declare a potential conflict of interest.
• What the charity’s governing document says (if anything) about conflicts of interest.
• When a conflicted charity trustee should withdraw from decision making and the procedures for making decisions in those circumstances.

See the sources of help, advice and best practice section for links to example conflict of interest policies.

When a charity trustee is aware of a conflict of interest and they feel unable to put the interests of the charity first, they must withdraw from the discussion or decision concerned.

It may also be appropriate for charity trustees to withdraw from discussions in other circumstances of conflict of interest. Where they do not, they should be able to demonstrate that they have acted in the interests of the charity.

The charity trustees should make sure there is a record of who took part in the discussions and decisions. Where there is a conflict and the conflicted charity trustee still takes part, how this is in the best interests of the charity needs to be explained.

All charity trustees must act in line with the duty to protect the interests of the charity. This means that you and the other charity trustees must take collective responsibility to make sure that a breach of charity trustee duties is corrected and not repeated.

If you know another charity trustee is conflicted, and it is not declared, it is your duty to speak up.

If there is serious or persistent breach of duty by an individual, the other charity trustees should look at whether the governing document has the power to remove the charity trustee.

As charity trustees you must try to make sure that any breach of duty regarding conflict of interest is corrected and not repeated. Where there is a serious or persistent breach the charity trustee should be removed, providing the governing document allows. If the other charity trustees fail to do so, this could be considered mismanagement or misconduct in the administration of the charity.

As regulator, we are required to identify and investigate any apparent misconduct and, where appropriate can take protective action. See our Inquiry Policy for more details. Our response will be proportionate; where a charity trustee has acted honestly and reasonably.

If you fail to comply with these duties then this is misconduct and we do have powers to take action against charity trustees, where appropriate. Our response will be proportionate depending on the situation.

Where a charity trustee has acted reasonably and honestly it is unlikely to be treated as misconduct.

Find out more about what we can and cannot do and what to expect if we have a concern about your charity.