Conflicts of Interest in Charity Governance Explained | LegalDocuments.co.uk

Overview

A conflict of interest in a charity context is any situation where a trustee's personal, financial or professional interests could influence, or could reasonably appear to influence, a decision they take on behalf of the charity. It isn't about bad character.

Most conflicts arise from ordinary life: a trustee's employer bids for a contract, a family member applies for a grant, a trustee sits on the board of a partner organisation, or a proposed policy would benefit a community group they're personally involved with. The law recognises two main types.

A direct conflict involves a personal benefit to the trustee, such as payment or employment. A conflict of loyalty involves competing duties, for instance where a trustee also represents a funder, local authority or another charity with overlapping interests. Both types matter because trustees owe a fiduciary duty to act solely in the charity's best interests.

The Charity Commission expects boards to have a written policy, a register of interests, and a consistent way of handling conflicts when they appear. Handled openly, most conflicts are straightforward. Handled badly, they can lead to regulatory scrutiny, reputational damage and even personal liability.

Key steps

1. Put a written conflicts policy in place. Every charity board should adopt a policy that defines what counts as a conflict, explains the difference between direct financial conflicts and conflicts of loyalty, and sets out how declarations are recorded and handled. The policy should be reviewed periodically and signed off at board level, so trustees know exactly what is expected of them.
2. Maintain a live register of interests. Keep a central record of each trustee's outside roles, employments, directorships, significant shareholdings, family connections and any relationships with suppliers, beneficiaries or partner organisations. Ask trustees to update their entry on joining, annually, and whenever circumstances change. The register should be readily available to the whole board and, in many cases, published or summarised for transparency.
3. Declare conflicts at the start of every meeting. Make conflicts a standing item on the agenda so trustees are prompted to disclose any interest in matters being discussed that day. Declarations should be minuted clearly, including the nature of the interest and what action was taken, so there is a documented trail if questions arise later.
4. Manage the conflict proportionately. Once an interest is declared, the board should decide how to handle it. Options include the conflicted trustee leaving the room for the discussion, not voting, not receiving the relevant papers, or delegating the decision to a sub-committee of unconflicted trustees. The approach should match the seriousness of the conflict, and the reasoning should be recorded in the minutes.
5. Escalate where the conflict cannot be managed. Some conflicts are too fundamental to handle internally, for example, where a significant proportion of the board is conflicted on a major decision, or where a trustee stands to gain materially and the governing document doesn't authorise it. In these cases the board may need to seek Charity Commission authorisation, take independent guidance, or reconsider whether the transaction should proceed at all.

Common questions