Conflict of interest is a critical matter for any board, but it is particularly an issue among founding boards. After all, those boards are usually filled with people who are close to the founder – and when that happens, all sorts of potential for conflict arises.
As we build the board at Creating the Future, we aren’t inclined to invite friends and family as is so common to founding boards. Using the approach from my Board Recruitment and Orientation workbook, Dimitri and I are inviting the first few board members, after which it will be up to those board members to recruit the rest of the board.
And while that is the best way we know to avoid having a “founder’s board” from the start, there is still the matter of those first few board members…
As we consider the issue of Conflict of Interest, then, this is not a theoretical discussion, but a real one – once again using Creating the Future as a case study to learn from together.
Status of Board Recruitment at Creating the Future
Given the great advice that was shared at this post on Recruitment Criteria, we have so far invited two amazing people to the board. So first, allow me to introduce the first two founding board members at Creating the Future – Mark Riffey and Alexandra Peters. We are excited about the skills and dedication each of them brings, and we hope you will link through to their profiles and get to know them.
Moving forward to recruit additional board members, we have a pool of people who meet all the criteria listed in that post – how exciting!!! However, that is where the issue of Conflict of Interest arises.
Conflict of Interest
Way back at the end of 2009, when Creating the Future was just a twinkle in our eyes and we hadn’t yet adopted our “Transparent Engagement” approach to decision-making, we gathered a group to help us begin considering the question of building a board. These were people we knew we could count on for both their wisdom and dedication – the graduates of our Consultant Immersion Courses.
During that conversation, we mentioned that several of those graduates would make great board members. And almost to the one, these governance experts pushed back, noting that they thought that would create an inherent conflict of interest.
The areas of conflict included the seemingly benign, for example, their ongoing participation in the curriculum – attending classes, taking workshops, etc. But they also included more substantive issues – receiving referrals for consulting gigs, as well as the small group of individuals who are working towards becoming instructors to teach the Creating the Future curriculum on behalf of the organization.
Overwhelmingly, our graduates told us, “We wouldn’t recommend this to a client. There’s just too much potential for conflict of interest.”
That was 18 months ago. In that intervening time, we have had two individuals already join the board, and there are several more amazing individuals from varied backgrounds on the list, yet to be invited.
One of those board members – Alexandra – has actually attended the class. We had intended to ask her even before she joined our graduate community, as we had gotten to know her immense wisdom prior to that week together.
And while the last thing we are thinking of is stacking the board with nothing but our graduates, there are one or two individuals we would very much like to engage as potential leaders of this organization! Having spent a week with them during the class (and for some, having had them come back more than once, to learn again, to go deeper into the teachings…), and having watched their growth via the online graduates’ community, we know that these are individuals with passion, shared values, dedication. We know we can count on them to ask tough questions in a constructive way, because they already do so.
In other words, they are every single thing one could want in a board member, with every single quality you all listed at this post. They even have the amazing quality suggested throughout my workbook – we have worked with them, know them, and therefore already know their level of commitment and dedication to doing the work.
Yet their comments from over a year ago still ring in our ears, making us wonder: Is there really such an overwhelming conflict of interest that these dedicated individuals should be discounted carte blanche?
What do you think?
- Is there an inherent conflict of interest if graduates of our classes become board members?
- If they continue to attend classes, take workshops, go through the next levels of the curriculum as it develops, is there a potential conflict there? If so, what is it? And how can we address that?
- If they accept referrals for business or become contract faculty, is there a conflict? And if so, how to address that?
- And is there anything else we haven’t asked that we should be asking when it comes to this group of amazing and dedicated individuals?
Any and all thoughts are more than welcome. We really want to figure this out!
Photo info: Taken outside the Taylor Community Science Resource Center in St. Louis, with our friend Jeane Vogel, on a VERY cold day in November 2008
35 thoughts on “Founding Boards & Conflict of Interest”
I write COI policies and give COI advice quite often. I think the conflict only arises if a business relationship develops or might reasonably develop. Anyone considering a faculty position or consulting referrals would be too problematic. For others, occasional issues might arise if things like book and course pricing came to the board, but those could be deemed operational and not brought to the board.
I don’t see how having taken a course would be an issue. At ASAE, for example, every single board member has likely taken ASAE course, paid to attend ASAE events, and bought products from ASAE.
I so appreciate your thoughts here. Your experience in this area is HUGE. Thank you!
In your thinking above, could you clarify what you are seeing as “problematic” re: the business relationships? If that conflict is disclosed and the person recuses him/herself from decisions related to those business issues, would it still be a problem?
In this first few years, the board will be starting from scratch to create policies regarding just about everything (i.e. the range of topics will be VERY broad, with work to be done on all of it). And so we are trying to get a handle on the extent to which the conflict is real vs. perceived, and further the extent to which it would intrude on the board’s actual work.
Thank you, my friend – I so appreciate your exploring this with us!
As a governance consultant I tend to agree with Jane on all points.
While not a terrible conflict and while former attendees are among the most informed, committed and skilled in the process, my feeling is that to keep things very clean, a board member should not take consulting assignments that come through Creating the Future or become Creating the Future faculty. Even if the person recuses him/herself from decision-making, there might always be a perception of unfair advantage. I think most you would consider for board membership would feel comfortable accepting a board position with those conditions or choosing to opt out of board membership for the opportunity to participate in a money-making venture.
Where I think the previous attendees can be particularly effective is in helping identify others (non-former Creating the Future attendees) who would make good board members.
Actually Hildy, Jane and Terrie, I would take another perspective – at several levels
1. Simply said, even the appearance of, or the suggestion of a non-arms length relationship with organization is sufficient to exclude consideration … period. Candidly – No rationalizing BS no slippery slope no sorta kinda maybe ok on wednesday’s between & 5 if you tiptoe. Nada Zero Zip.
2. Which bring me to the second point – IT’s THE WRONG QUESTION – if ya gotta ask – if it raises the question – it’s the wrong question. period end of story no rationalizing slippery slope nonsense – Wrong question.
3. What is/are the role(s) of the board, and how should it be constituted to discharge it’s duties to the corporation and to the community. Is the right set of questions
4. ROLE to avoid COI for NPO’s I strongly urge ZERO Board compensation, real agenda set by the board, real regular meetings
5. GOVERNANCE, approving vision mission values strat plan, setting policy – not micro managing … otherwise why be responsible for evaluating the ED if you’re in each others pockets.
6. REAL FIDUCIARY RESPONSIBILITY – approving a realistic and achievable balanced budget – tracked with actual vs budget variance monthly – and given to the board mponthly and – IMPORTANT in many cases NPO boards actually are individually and personally liable for the finances of the organization if mismanages resources.
7. REAL JOB DESCRIPTIONS Each have real mutually agreed upon job descriptions that match their individual skill sets – i.e. governance, academic Creds (state & fed edu licensing eval regis board approval, req likely), fund raising, accounting, marketing, human resources compensation training, legal, copyright publishing, licensing, franchise ops, NPO management, collaborative partner bd members etc.
Do your future individual board members EACH HAVE one of these skill sets. Have they been specifically and actively recruiting for these specific skill sets above – is and are the board members culturally, ethnically, clinically, professionaly diverse and INDEPENDENT – no entangling alliances – no masthead members only
Do you have limited rotating staggered terms of office 2 3 year terms to ensure fresh blood, reduce stagnation – edifice complex etc all the stuff you say
All those issues/questions – are much more appropriate than whether these really nice people, with all the wonderful simpatico skill sets, who make great butternut squash soup and …and who of course agree with you! (I hope not)
Bottom line: the rg team execs and staff manage the organization – the board governs and really oversees – and is not constructed or manipulated or convened and will not be a rubber stamp … Unless you want all of the outcomes you say you are avoiding in creating the future…. to be de javu all over again
More critically – former students come to the board with a pre-existing and likely perpetual deferential position relative you as their teacher and mentor – and are subsequently and effectively co-opted in their ability to challenge you independently – as required by their independent fiduciary responsibility to the board
For other uses, see Noblesse Oblige (disambiguation).
Noblesse oblige is a French phrase literally meaning “nobility obliges”.
The Dictionnaire de l’Académie française defines it thus:
Whoever claims to be noble must conduct himself nobly.
(Figuratively) One must act in a fashion that conforms to one’s position, and with the reputation that one has earned.
Wow! Governance consultants are strict.
From a legal perspective, board members simply disclose their financial interest in a matter before the board and recuse themselves from the discussion and vote. I realize, however, that you are looking at group dynamics and the subtle ways that even minor conflicts can thwart governance.
I’m worried about throwing the baby out with the bath water here. I would think attending your immersion course is practically a prerequisite for truly understanding what this project is about.
I think you could accommodate the consultant board members by instituting a requirement that at least a majority of the board must be completely independent. That way, the majority would always be a group with no qualms about exercising their fiduciary duty even if it means challenging you and Dimitri. This might require a larger board than what you are considering.
You might also consider a more customized conflict of interest policy that defines conflicts more broadly than the typical policy to trigger disclosure and recusal over interests beyond mere financial interests.
I’ll be interested to see where you come out on this one.
Jane is right. The issue here isn’t conflict of interest. It’s independent mindedness.
I didn’t intend to comment on this post. But since I’ve been pondering similar founder/board issues for a coming consultation, I’ll share my opinion. None of this is “news” to any of us. But throwing out there what we already know may be useful to your deliberation.
Support of (and hopefully, passion for) organizational vision and mission is the bottom line for any prospective board member. No invitation should be extended or accepted if that essential element is not in place. On the surface, that makes filling the CTF board with graduates a no-brainer. But it’s not that easy. CTF is a worldview as much as it is a pool of services, which challenges the requirement that board members to not just be able to confront conventional organizational wisdom but willing to do so.
As stewards of the vision and mission, with moral and legal accountability surpassing even the founder’s, board members must have no problem with speaking up and with challenging the founder when the need arises. If the board isn’t willing or able to do this, it is not fulfilling its responsibilities. That means occasionally setting aside friendships for the good of the organization. Most initial boards are populated with friends and supporters of the founder. When those boards fall short, it’s often because they are unable to question the founder; tell that person he/she is full of baloney; and make what ultimately is the right decision for the organization, whether or not the founder agrees.
I’m not suggesting that CTF graduates cannot overcome this challenge. Those I know and have befriended are smart, committed, phenomenal people. But they – and you –also are human. If a CTF grad accepts a position on its board, now or in the future, there must be frank discussions throughout his/her service about the absolute obligation to challenge the organizational status quo and to stand up for what is right for CTF.
There’s also a “content” concern here. What distinguishes CTF is its worldview. While remaining true to the core elements, your board – like any nonprofit board – benefits from diversity of thinking, diversity of approaches to investigating and deliberating decisions facing the board. You want board members who come at issues from different angles, who see things differently and ask different kinds of questions, all while grounding their ultimate decisions in the mission. That may be a different kind of issue for this board, also not impossible, but one of which CTF leadership should be aware.
I’d like to express something from a personal view point if I may.
As a graduate of the program, who has returned, and is continuing to look to return for deepening my training / upgrading, and being very excited to be involved in the upcoming Social Entrepreneur’s Training development;
…and is not and will not be receiving “leads” if you will from CTF, if anything I will be actively promoting and bringing potential consultant / coaching candidates in;
…and as much as I completely agree that there IS conflict of interest, and have been known to draw very hard lines about it in Boards I have been connected to in the past,
sometimes I wonder if it’s less a matter of a “yes or no” and more of a “how so”??
Clearly what is being created here through Creating the Future is establishing a new framework of thought toward a more life-affirming way to engage ourselves in our communities, and our communities in themselves and their future.
From that standpoint, could we not propose that it is not about saying “no we can’t or shouldn’t” but that IF it occurs, under what circumstances (or conditions), and what guidelines/systems we want to create to make that occur in the most life-giving way, and come from that space?
I may be reiterating what some have already said in some way, but I wanted to share this thought…
In Gratitude to participate in, and witness the evolution,
I think that Debra and Trae have spoken well…technically, COI only needs to be disclosed and dealt with in a consistent manner (hospital boards almost always have employeed or contract physician leaders, many social service organizations have clients, education organizations typically have parents, etc). However, the ability to challenge Hildy and Dimitri (and other grads board members with whom the board member is likely to have a continuing relationship as an alum) is essential, and a balanced board that contains members who are knowledgeable about various aspects that intersect with the vision of CTF, but that come to it from different perspectives is also very important.
From both the technical view and the desired traits of a board member, it would seem that you would want to ensure that your board is sufficiently well-rounded so as the number of people who are actively involved in any paid work relating to CTF is minimal (that you have a critical mass after recusals) and that the degree of conflict is also considered (e.g. is any financial relationship with CTF a significant factor to the invidual or CTF, or is it just tangential). Trusting your gut is important, if you think that someone is the right person and Jon’s points don’t leave you equivocating, then I wonder, like Trae, if there isn’t a middle gorund of figuring out how to include the best people in a way that doesn’t diminish the collective role of the board (since it is collective not individual).
That said, perhaps the question also raises an equally important question: how to involve grads in providing input into the future of CTF…what mechanisms will allow CTF to tap their passion and insights other than board membership…in a way that expresses value for multiple ways of contributing to the success of CTF, not only as a board member.
This is really really really good stuff. Really.
I’m going to respond / move this line of questioning forward with two comments – one to fill in facts, the next to move forward. And up front, I need to say that your questions and comments are doing precisely what we need – moving forward. So thank you more than I can say.
Ok – first lets fill in the facts. In particular, I was struck by Debra’s comment (and Bill’s then riffing on Debra’s), particularly this part: “As stewards of the vision and mission, with moral and legal accountability surpassing even the founder’s, board members must have no problem with speaking up and with challenging the founder when the need arises.”
So, in no particular order, some more background info:
1) Dimitri and I have a track record of starting organizations and immediately developing succession plans – and then actually leaving! We’ve done it twice already, and so our Succession Plan was, in fact, the first plan we developed before even any program plans for Creating the Future. First, none of us knows when our time on this planet will be cut short by a meteor hitting our house, so there’s that. And second, the best interests of this organization mandate that the founders not be hanging on by their claws – that it be built like a starfish from the start, to accomplish its mission.
So while we may be key players now as it’s being built, our intent is that Creating the Future have an ED / CEO VERY soon, who will not be us – and that we will soon play a very different role for the organization than the day-to-day management / implementation role.
2) In addition, I will very soon not be the only one teaching the consulting course. The whole point of building this organization as a starfish is that the leadership in every single aspect will be taken on by those who rise to that level of possibility. (When we said “faculty” we weren’t kidding). So the deference of board member to teacher will not necessarily be what it would be right now, and that is slated to happen within the next 12 months.
3) We are therefore not looking at policies for just what we do right now, but into the future of this board – after Dimitri and I are not “the staff” and after I am no longer teaching the course. And all of that may be within the next year – so it’s not a “some day” but something that is in the near-term plans. As Trae and her partner Troy have coined the phrase, we are beginning as we intend to continue – building for what organization will be 2 years and 10 years from now, not for right now.
4) In addition, the percentage of what Creating the Future is (as Debra points out) that will be the consultant faculty and referrals will be small. Yes, it will absolutely still be a business transaction, as others have pointed out. But Creating the Future is building out a full spectrum of programs for boards and EDs and Social Entrepreneurs and Funders and Academic Professors and Nonprofit Resource Centers. And then within the spectrum of Consultant programs, the “referrals” and “faculty positions” will be a small percentage, and then again within the full range of programs, the Consultant programs may only be 1/6 or less. So a percentage of a percentage.
5) And then lastly, I guess, is that “faculty” may mean teaching one course a year – or it may be full time. The referrals might amount to one a year, or so much that it keeps a consultant busy full time. It will be different in each case. Does that make any difference?
Which leads me to see that the question can spiral, and that that is always an indication that it is the wrong question.
6) Another example of the spiral: Would this same rule apply to someone who is taking an affiliate fee for selling our soon-to-be-launched Flash Classes from their website? While the percentage of the $10 monthly fee might not be anything on its own, if they sell 10 and that is monthly income – well you begin to see that it becomes another spiraling question.
Which leads to a whole ‘nother line of thought…
Now for moving this question forward…
1) For those who don’t already know – until Dimitri and I completely stopped consulting last year, to focus full time on building Creating the Future, I was one of those governance consultants who knew the rules, advised with those rules, and might very well have said, “It’s not worth the trouble – there’s a world of people out there who do NOT have a conflict, so find them and you’re done.”
But I am reflecting on this in a very different way now. And it’s not because I want the expediency that founders often desire. (Anyone who has watched this process so far knows that it has been building from anything but expediency!)
2) My bigger concern is how we question dominant paradigms, how we create something that accomplishes what is possible, rather than guarding against what we are afraid of. Currently, governance is almost entirely about the latter. The spiraling nature of the Conflict of Interest question is a case in point – it is all about what we are afraid might happen.
3) As an object lesson for consultants, though, being the founder right now, and being in the middle of the decision-making (not as a consultant looking in, but as someone who is responsible for building this right now), I am just as entrenched as any founder, which leads to not always having the highest-potential questions even at my fingertips.
This brings up two observations, the first of which is why it is SO important that Creating the Future’s mission be accomplished – that high potential systems become the norm, rather than the exception, so the default questions will be whatever may come from this discussion.
The second observation is the power of having this discussion be public, where dispassionate minds can share their thoughts. Again this process continues to be invaluable.
4) So, if Creating the Future is a living laboratory, experimenting to find what is possible and what undergirds and supports that possibility – in all systems used by social good (including social enterprise, many of which often become tax exempt and then wind up with the same quandaries) – what questions about Conflict of Interest can bring governance to its highest potential? Let me play with some, and see what you guys can add:
• What is the highest potential for governance as leadership?
• What is the highest potential of a Conflict of Interest policy?
• What does a Conflict of Interest policy make possible?
• Can we construct governance in a way that aims affirmatively at what we DO want, rather than aiming policies punitively at what we are afraid of – what we do NOT want?
At its heart, a conflict of interest issue is always about what we are afraid might happen. So what would it look like on the FLIP side of that question. We know what we’re afraid of with Conflict of Interest. What would it look like if the situation were good, forward-moving? And how can we create policies that ensure that?
Looking forward to seeing how we can create something that is more life-giving than fear-responding! 🙂
Ellis has the legal issues covered; provided, however, for others reading these comments, certain state laws (like those in California) will require that a majority of the directors not be “interested persons” (i.e., compensated either as employees or independent contractors or related to a compensated person …). And on a more subtle level, each director must observe a duty of loyalty to act in the best interests of the organization, which can be difficult to do if the board is not clear about the organization’s priorities in terms of how it furthers its exempt purposes (mission), including how it defines and observes its core values.
While the organization itself might be best governed (in some ways) by persons who are most familiar with the organization and its contemplated operations, would its value as a demonstration project be compromised by including a large percentage of interested persons? If I was looking at such a governance structure from the outside without knowing any of the persons involved, it might immediately raise suspicions, and I might never take the next step to get to know the organization better.
HG: Is there really such an overwhelming conflict of interest that these dedicated individuals should be discounted carte blanche?
MR: Working from a position of assumed distrust seems like the totally wrongheaded place to start any board’s selection process, but seems especially off-kilter for this one and in fact seems like a non-issue to me. Here’s why: If you can’t trust someone to perform ethically under any circumstances related to your organization / effort etc, why in the world would you EVER consider them for your board?
MR: Nothing else matters. If you don’t trust them, none of these other exception/example cases, questions and/or issues matter one little bit. They’re irrelevant if we’re discussing a person you don’t trust completely. Trust during this selection process as foundational to the org as the Prime Directive to the plot of a Star Trek episode (non-nerds can roll their eyes now).
MR: Kim Tso’s comment in the original post last October illustrates the trust requirement: If the person isn’t willing to be a publicly-visible face (as opposed to a spokesperson et al), then why in the world would you consider them for your board? The reasons that people could come up with for working as an invisible board member speak directly to the trust issue. What are they ashamed and/or afraid of by revealing their association to the public? What trust issues does that bring up? Doesn’t matter – it brings trust into question and that’s what matters.
HG: Is there an inherent conflict of interest if graduates of our classes become board members?
MR: Is there an inherent conflict of interest in specifically avoiding graduates? If so, what does that say about the course they just took part in? Does the organization implicitly fail to trust its own graduates? What does that say about the organization, its course and its graduates? Ouch:)
MR: Is avoiding graduates responsible from a fiduciary perspective? I don’t mean as a safety measure, but as a “we selected less-capable/lesser-trained board members because we couldn’t depend on the level of trust of our graduates BECAUSE they are graduates and for no other reason.” How’s that feel?
HG: If they continue to attend classes, take workshops, go through the next levels of the curriculum as it develops, is there a potential conflict there? If so, what is it? And how can we address that?
MR: Seems to me that this exposure to the org’s products/services will make them better board members, not less qualified ones. Even if the board took on people it didn’t trust AND the board set curriculum, how could the member we admit in advance that we don’t trust possibly alter that curriculum to benefit them in a way that introduces a COI? And how would that potential COI go undetected/unresolved until after the course is designed, written and held? Even if it did, such a breach of trust would eject that person from the board.
HG: If they accept referrals for business or become contract faculty, is there a conflict? And if so, how to address that?
MR: If you can’t trust them, why are they even under consideration for the board, referral or faculty? The best available person for the job is the best available person for the job only if you trust them.
MR: Regarding the affiliate question – I would be more concerned about a board member who believes so little in the product and the organization that they’d be unwilling to represent (back to Kim’s comment) a $10 affiliate product. If it doesn’t fit their market, that’s one thing, but that’s not the question Kim asked – and it’s not the question that makes you wonder trust-wise. If someone is willing to take untrustworthy actions for their cut of a $10 sale, where did the board evaluation process go wrong?
HG: And is there anything else we haven’t asked that we should be asking when it comes to this group of amazing and dedicated individuals?
MR: Parting thought: If less-desirable choices/decisions are made due to the appearance that a different choice/decision would produce, can that board’s choices/decisions be trusted? Put another way, are the right choices/decisions that indefensible?
Interesting thread and some great comments. I’ve dealt with more orgs than I want to count that had conflicts of interest on the board and all the above comments come into play in one form or another and in my experience, as Trae says, it is more about what we do when there is a conflict of interest than avoiding it.
What I wonder about is if you have a Conflict of Interest policy will you also have a Convergence of Interest policy for Board members? How can we operate from our strengths versus implied fears that may or may not ever actual happen?
I was going to wait until I had more time to thoughtfully respond to all this great stuff, but then I saw Carlo’s question about a Convergence of Interest policy. And my heart nearly exploded out of my chest.
So allow me to just say YES I love it! And to bow in gratitude for the brilliance all of you are sharing. Humbled beyond words for all of it. I know this is all moving us forward, to create what we DO want rather than the ongoing reaction against what we fear.
Keep it coming, gang! What else might we consider, as we aim at creating the environment for the board to thrive in its position of leading and guiding the efforts of this movement? (Almost feels like another post coming on…)
I think Sir Walter Scott would have to rethink his famous stanza (Oh, what a tangled web we weave…) after realizing that this particularly tangled World Wide Web brings us much closer to transparency and authentic understanding than anything imaginable in 1806.
I’m a little late to the party here (loving Carlo’s “Convergence of Interest Policy”), and have very little to add. Just wanted to jump in and echo some of the sentiments around the fact that program/service delivery participation is a MUST for “regular” nonprofits, so why would CTF be any different?
In other words, hypothetically, if board members of my Boys & Girls Clubs chapter did not participate in our after school activities I would not be confident in the board’s ability to think, decide and act with a true mission- and vision-based understanding of the organization.
I would point to CHDO Board Requirements and other similar best-practiced organizations that require at least 1/3 of the board to be participants of the organization’s services.
My two cents, anyway…
The whole issue of federally funded clinics never occurred to me. It creates a completely different question of “What does it mean to be deriving benefit from the organization?” and very specifically the issue of deriving excess benefit from being on the board – which again raises Mark’s issues of trust, and etc. Thank you for this!
To Gene’s point, I would go beyond saying that a whole board filled with interested persons would not be attractive to others – it would also be boring as can be! Talk about breathing one’s own air! The question isn’t really should we have a whole board filled with just graduates who may be on their way to consulting and/or teaching on behalf of the organization; the question is “Is it even ok to have just one?”
Loving the thinking that is being generated here, gang. It is giving us a ton to consider as we build governance structures for this new organization!
Personally, I can’t image why anyone would join a board in which they didn’t have a great interest. Oh, different kind of interest? Not really. The word means concern, involvement in, curiosity about. Sounds right to me for a board member. (Love that “convergence of interest”, Carlo!) You’d better be really interested if you take on the level of involvement in which you hold yourself responsible for what the organization does.
And of course you can be a consumer of the services of the organization, or a recipient of those services, and still be a member of the accountable body. Why not? Why wouldn’t it be of great value for members of the board to continue to participate in the work of the organization as consumers themselves? There is so much power in knowing an organization from the inside out, and understanding first hand the strengths of what it can do and how it can effect change. Wouldn’t it be wonderful if all boards had that level of representation?
You just can’t put your own interests ahead of the those of the organization, if you’re serving on its board. That’s not only financial interest. You can’t make decisions on behalf of the organization that serve your needs before the needs of the organization. I think of the parent on the school board who said, “I can’t vote for that. That goes against my son’s needs.” But as a member of the board, she was there not as a mother, but as a representative of the community.
And I don’t much like the idea of a “conflict” of interest. There doesn’t have to be any conflict. You can’t be a member of a board if you are putting your own interest ahead of your interest in the organization. But why wouldn’t we trust the prospective board member to tell us that?
So I think the question that needs to be asked of all prospective board members is simple: can you, in your role as a board member, make decisions that benefit everyone in the community, not just you? Can you put the needs of the community before your own? A trustworthy grownup can answer that one for him or herself. (I agree with Mark that if you can’t trust them, why would they be under consideration?) And if the answer is no, which for many would be a perfectly reasonable and honorable answer – well then, no conflict. This board is not for them.
Your blog post indicates to me that there are two levels of inquiry here – the practical avoidance of CoI issue and the larger (and even more practical) issue of building the organization in the public eye.
Practical avoidance of conflict of interest:
Not to minimize the importance of ethical considerations, but from where I sit, I take it as a given that the appropriate discussion will take place early on, among CTF board members to define what a conflict is, to have processes that mitigate against it and to address it when it arises.
Building the organization in the public eye:
With those processes in place, the way is open to considering the value of welcoming participants as board members. I’m going to make the case for inclusion, based on many years experience in working with and animating community participants in neighbourhood programs who were simultaneously “clients” (I so dislike that word), participants, citizens, leaders – and, yes, successful board members.
A personal concern: I’m disturbed by ongoing public conversations about the advisability of allowing “clients” be volunteers, let alone board members. I refer to recent workshops/discussions on this topic in Ontario, and I’m sure still taking place around Canada and the U.S. I see participation in governance as a basic citizenship activity, and it floors me when my colleagues in the community benefit sector argue against it.
In my experience, there is a special place for an organizations’ participants and volunteers to be very effective board members, for all the reasons you state in your writing and work. They know the value of the work intimately, and can be the best evidence of the difference the organization is seeking to make for a community.
I believe CTF would benefit from efforts aimed at assuring its constituents/stakeholders that board members pay close attention to objectivity as a condition of strengthening CTF. In what ways could CTF’s board demonstrate to its constituents the objectivity of its decisions? I would expect that the CTF board would make extensive use of values-based decision-making processes, which are an excellent way of demonstrating objectivity to stakeholders. I have practiced this approach, I teach it and recommend it to boards in my consulting work.
I also believe CTF would benefit and grow from ensuring there is enough “space” in the board’s culture for innovative thinking. That is, the ability for board members to challenge the process, for the board as a whole to benefit from diverse experience and thought processes of its members. One approach is to consciously structure the board with constituent positions (in this case, I’m referring to graduates) and at-large positions. It results in the board having a sense of itself as responsible to a community that’s bigger than itself, while being deeply internally responsive to the interests and needs of the vision it is serving (ie. achieving what it holds itself accountable for). Encouraging divergent thinking is an effective way of avoiding conflict of interest.
These last two paragraphs imply the board’s ability for self-reflection and awareness of practice and perception. Include in the “absolute must-have qualities” people who are comfortable working in the “public eye” and modelling the way. For example, in my neighbourhood experience, board members are consciously aware that they are always being watched, so they work at being quotable and modelling something worth emulating.
With all that said, I see no issue with graduates being board members if consideration is given to other measures that off-set the causes for concern. In fact, I encourage it.
Wow! Carlo, you are brilliant – I love the idea of a Convergence of Interest policy. When do we see your draft?
Gayle, your views are so close to mine I’m not sure why I’m posting. Of course people already involved and passionate should not be excluded from leadership. That is part of citizenship writ large. And of course the Board should be more than just graduates; diversity is a key to high quality decision making.
I’ve been one of the strongest Hildy supporters in the world – but if you saw the feedback I sent on early versions of The Pollyanna Principles you’d also see no fear of challenging her approaches. I’ve been to two CTF consultant immersion courses and the graduates are no shrinking violets or those who follow blindly.
That said, I think even a small amount of business relationships with board members could harm the reputation of Creating the Future, especially at the start. I’m almost crying as I say this as I never wanted to have to choose if an offer was made. However, there are more ways than a board to volunteer for an organization, and I look forward to seeing the overall governance structure emerge.
With nearly thirty years consulting on all matters for charities, I have found that the major issue in COI discussions is a misconception of COI itself, often seeing “conflict” of interest where more often than not there is “harmony” of interest—i.e., overlapping interests that are not conflicting and can often be mutually reinforcing. Mutual interests conflict when they are mutually subverting or antagonistic rather than reinforcing.
Independence of mind always helps.
First, thank you all a TON for your brilliance. I can’t imagine figuring out this issue any other way than this (imagine 4 board members just sitting around a table without all this input!!!)
I am struck by what appears to be a plethora of ways of thinking about the word “independence.” Independence begs the question, “From what?” What would “independent” look like in practice?
I think that would help a lot in crafting policies that move Creating the Future (and other organizations) forward.
The other question this raises for me is what interests we would want to see “converge” rather than simply defining the conflicts we want to avoid. (Carlo, you are SO my hero for the language here!)
Is there a clear picture of what interests we would want all board members to agree upon? (Which, of course, then begs further the question of independence of thought…)
To these various perspectives, let me add another – based on a career in exectuive positions with nonprofits including board relations and support. That experience confirms the wisdom of Mr.Hardie’s view. Here’s why:
1. Boards represent the State (in lieu of stockholders)with a primary obligation to represent the public’s interest in the exercise of its governance responsibilities.
2. That primary role underscores the second of the two central COI questions: (a) Is there a conflict? And (b)Is there the appearance of a conflict?
Thus the fundamental soundness of Mr. Hardie’s thinking: anything, anthing that might reasonably appear as a conflict of interest as viewed by the public (not by the board itself which is, in this instance, an interested party and thus conflicted, curiously enough)is or should be verboten.
Why is the board itself “conflicted”? Because it elected the member about whom the issue arises. It’s own decision comes into question.
Even so, the board still can meet its obligations to the public if (a)the conflict was not disclosed by the board member, the board can act appropriately once it becomes aware of the problem or (b) if the conflict arises due to new circumstances, again the board can act in a timely fashion.
Anything a board does or doesn’t do which risks eroding the trust of the public in the integrity of the nonprofit violates the board’s primary responsibility.
Conflicts of interest tend to be difficult in part because the law only addresses how to handle certain conflicts of interest as Ellis and Gene have discussed, which means there is much room for discussion in how to handle other conflicts of interest that can be just as troubling or problematic for the organization. As many have noted, conflicts of interest raise both legal and perception issues and what is needed to address one does not necessarily address the other. I would just add a few more thoughts:
– Review policies and the practical implications from the perspective of your biggest skeptic. Audiences vary in their attitudes towards conflicts of interest and willingness to trust organizations, but anyone can raise a concern to the authorities or media.
– Review policies and the practical implications from the perspective of your most removed director – his or her concerns may not always overlap with your biggest skeptic. Both may want to see straightforward governance policies and governance trainings, but an individual who will be intimately involved in the organization may have additional social concerns. For example, not every potential board member may necessarily be familiar or have a pre-existing relationship with a current director. Speaking up against a group of people you don’t know can be just as uncomfortable as speaking up against someone you know.
– A board of directors is only one option for utilizing highly valued and qualified individuals. Assuming you have more individuals interested in joining the board than you would want due to conflict of interest issues, it may be worth exploring alternative avenues for engagement that do not carry the same level of authority or risk of perceived impropriety, such as membership on an advisory board or program committee. This may also bring added recruitment value by presenting the more risk adverse individuals with an opportunity to test the waters before committing to joining the board.
Back from being on the road yesterday, ironically (or perhaps not) giving a talk about the value of operating with the transparency of decision-making that we are evidencing in this very discussion…
As we were driving, Dimitri mentioned something that has not entered into this conversation, which we have discussed directly with Ellis, given her intense interest in this area from a legal perspective.
And that is the question of what degree some of this becomes academic if all decisions are made transparently. Dimitri’s comment was, “Conflict of interest is of particular concern when decisions are made behind closed doors. But if all decisions are made openly and transparently, and conflicts are disclosed and interested persons recuse themselves from relevant decisions, does that change things?”
Which I would toss back out to you all. What changes re: conflict of interest when all major decisions are made openly for all to see? (Thinking it’s time to post that as a separate question, with a separate post. Love how this discussion has led us to new thinking!)
I wanted to share a thought, and I believe it dovetails with the comment you shared from Dimitri.
There are a number of definitions and assumptions being held, which under-gird all these comments. Definitions and assumptions about what a Board is, how a Board makes choices and in this particular conversation, what happens when there is Conflict of Interest.
There is not any doubt that registering CTF as a 501c3 dictates a certain degree of modus operandi under which CTF is then morally, ethically and legally expected to adhere to. I’m not so sure though, whether or not it may be in full alignment with what CTF is, or is becoming?
I believe the process of making CTF a 501c3 has already started, and I don’t want to undo what’s being done and all the work that has gone into things so far, but really, is that the best and most representative, and highest good structure for us, in which to operate?
You bring up the word “independence” – to me, that is not what CTF is about. It’s about “inter-dependence” and, if I may comment as a result of this discussion, about how “intra-dependence” emerges as a result.
Much like a Cooperative (and I’m not necessarily advocating this structure either but posing it as an “and-also” to learn from), where the membership IS the Board, not just the Board representing the membership or the public – then everything, and I do mean everything then, is about discussion and concensus.
The Board then truly serves as spokes-people on behalf of the larger whole. From that standpoint then, there isn’t anything that is “behind the scenes” or “in camera”. Not that there couldn’t be a new “something in the middle” relative to choosing what works from a number of structures, but to me when we talk about a Board, it’s about having individuals leading the conversation in a way which allows for that kind of exploration.
I am in gratitude for my colleague and good friend Carlo and his suggestion of a “Convergence of Interest” policy. Carlo, have I told you lately that you’re brilliant?!?!
I want to clarify his perception though… when I suggested that it’s more a matter of “how so” it has less to do with “about what we do when there is a conflict of interest than avoiding it.” and more to do with how we can proactively co-create something that comes from our strengths, about what it means to truly COOPERATE with everyone’s interests.
…To share assets and resources, and to create win-win-wins ad infinitum by encouraging more and more environments (like the Diaper Bank and then some) which are about allowing our higher faculties as human beings (as opposed to pigs, dogs or horses) to rise up and demonstrate themselves in a life-affirming manner.
I think THAT is our true “human nature” it’s what we’re called to do as humanity. And I for one would love to participate and witness the joy of all of us entertaining, engaging in and taking action toward creating something truly “new” around this topic.
In Spirit, and in Gratitude for all those who have made this conversation so rich,
First thank you for what is always your own brilliance. It is so much a joy having you on this journey with us.
The best answer I can provide re: the 501c3 is that yes, it is in the works. Because you are not the first to have asked us “Why use this format?” I will absolutely be posting about this and appreciate the reminder to do so.
The short answer has had to do with our own core values around change.
If our intent and our mission are to change the norms of community benefit work to make it more effective in creating the future we want, and if the lion’s share of community benefit work is currently being done by “nonprofit” “NGO” tax exempt orgs, in our own minds it made sense to be one of those entities, to work as peers rather than point fingers from the outside.
It also made sense to be able to experiment within those constructs, to see what really is possible, rather than make all the assumptions we all tend to make about what those structures do NOT allow.
And so we have seen this as a “both and” rather than an “either or,” as we know we can create all sorts of structures and systems that can work, including a cooperative model – and that truly the tax status doesn’t dictate most of that – norms and conformity of thinking do.
So thank you for the reminder that what we had taken for granted as a core value non-decision actually is a decision, and therefore one to be discussed publicly here!
Thank-you Hildy, you know me, I just need to ask the question.
Since a “non-profit” model is preferred from the perspective of being a peer, the Board of CTF may be interested in learning more about the “Clubhouse” model out of New York.
It caters to those with severe brain disorders / mental illness, but what I find fascinating is that the “clients” (if you will) ARE the members and RUN the organization (including serving on the Board) – and EVERYTHING is done by way of consensus.
I used to be on the Board of the Chapter here in Calgary, just for that very reason in terms of how they operate at all levels, and found the Clubhouse Members had a lot to teach the Board members when it came to discussing something until it was done, and coming to consensus – absolutely lovely!
Hope this assists, Take Care,
The main question that we need to answer here is whose interests should the organisation be in tune with? Conflict of interest only arises when the interests of those who serve on the board are, or can be seen to be, in conflict with the interests of those to whom the organisation owes its ultimate allegiance. Lots of different people have different types of interest in your organisation but which people’s interests should be paramount? In other words, until you have defined who your “owners” are, you cannot define what “conflict of interest” means in your particular organisation.
This is why I see John Carver’s concept of ownership as the starting point of any meaningful discussion about conflict of interest in particular and governance in general. My April 2009 article at http://www.goodtogovern.com entitled “Ownership and Boards” explains further and I would be very happy to discuss this with you any time Hildy. You have some interesting questions to consider.
Thanks for this – it helps further the thinking a lot.
We actually begin with a different question than the one you suggest in your first line. The question we work with is, “If this organization is to accomplish its mission and create the change we are dedicated to making – the organization’s highest potential – what kind of conflict of interest policy would aim us towards accomplishing our mission? What conditions would that policy need to create, that would lead towards the difference we want to make?”
In the work we have done for the past decade, studying those efforts where significant change occurs, we have found that working from the starting point of the change we want to see in our world is the most effective starting point for guiding conversations about organizational structure. Otherwise, it becomes about the organization, when really orgs are just catalysts for changing communities.
It’s a big part of why we are engaging this critical question (and all other major questions, for that matter) publicly. If the future we want to create is one where people relate authentically, then that is what we will be right now – modeling it, being the change we want to see, right now.
Thanks again for helping me to clarify that!
While I think there is value in Carver’s notion of a “moral ownership”, I don’t think its relevant to this issue. Since “owners” of non-share corporations are essentially fictional and have no fiduciary duties, they have whatever interests the board wants to ascribe to them.
The interests that are important here are the interests of the corporation (ie. its ability to pursue its vision effectively, efficiently, ethically, and legally) and the interests of those in a fiduciary relationship with the corporation. A conflict exists when a fiduciary pursues an interest that conflicts with that of the corporation. I don’t see what this has to do with the notion of “owners” to whom the board is accountable.
I have a question. We are a new nonprofit and although we have pretty much developed our board of directors, our founder wants to invite a friend who has a for profit business that provides the exact types of services that we will be providing (transitional services to young adults with developmental disabilites which includes vocational training and job placement services.
In addition to having a for profit business, this friend of our founder is forming a separate nonprofit organization for the purpose of receiving government grants that are soon to become unavailable to for profit businesses.
I am very uncomfortable about this association. Should I be?
Thanks for any input you may have.
Hi Hildy, Great question and discussion!
First, note that the US Court of Appeals 7th Circuit recently ruled that disclosure alone is not enough..so the standard is now tougher: http://ht.ly/56fgh. My own thoughts are that in all communities, we have a tangled web of relationships.
Generally, I recommend asking these two questions to qualify candidates: 1) Could that board member personally profit — or can his/her company profit — from a decision made by the board? 2) Could that board member personally profit — or could his/her company profit — from information that he/she receives exclusively as a board member? If the answer is “yes” to either 1 or 2, I’d have concerns — because of the “duty of loyalty,” and even more so, because of appearances.
In terms of appearances, as we know, once an organization’s integrity is called into question in the media, an organization can essentially be destroyed even before the organization has a chance to exonerate itself through a full fact-checking.
Thanks to our colleagues for this illuminating exchange on a challenging topic!