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Creating a Conflict of Interest Policy

Every co-op should have a conflict of interest policy as part of its bylaws or policy manual. It will provide direction and clarity for boards and members to avoid conflicts of interest.

What is a conflict of interest?  Basically, it’s a situation where someone’s personal interests conflict with the interests of the business or organization they represent. This usually involves needing to make a decision on behalf of the business/organization that could personally or financially benefit you or a member of your family.

Conflict of interest situations can be difficult to work through, but having a policy in place that provides clear direction will help to avoid problems.

Identifying issues

A good policy should begin with a clear definition of a conflict of interest, one that includes multiple examples that highlight the direct or indirect interests involved. Here’s an example:

Bob serves on a board of directors that needs to award a contract to a painter. Bob’s wife, a painter, puts in a bid for the contract. Bob has a personal interest in seeing his wife awarded the contract and he is now faced with a potential conflict of interest.

Ensure the board reviews these examples and is aware of the situations or circumstances that give rise to a conflict of interest.

Provide a means of reporting

Handled properly, a conflict of interest isn’t a bad thing. Many decision-makers find themselves in a position where they face a conflict of interest — it’s just important to identify these situations so an appropriate solution can be found. A conflict of interest policy should provide details about how the conflict should be recognized, like filling out a disclosure form that explains the situation. For the policy to work, however, those involved have to be honest and transparent.

Create a system for resolving conflicts of interest

The policy will also have to include details about how the conflict will be resolved. This often means giving a conflict of interest disclosure form to the board chair and allowing the board to discuss it. To fulfill its responsibilities to the co-op, the board needs to make a decision about the conflict in a and transparent way.

Depending on the nature of the conflict of interest, an action may not be necessary and the individual in question could continue in the decision-making process. If a conflict of interest is apparent it may be appropriate to ask the individual involved to step away from the decision-making process to ensure it is free from any possible conflicts.

Enjoy this tool? Then you’ll find that our page on incorporating is full of advice, like how to write bylaws.

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