In a community-owned charitable Foundation1, the formal Members elect Directors to act on their behalf, and consequently each Director’s duty is to represent the membership, not others who did not elect them. Further, every director can be expected to have multiple dimensions to their lives which they will need to balance. Let’s consider who directors represent, what is meant by “Conflicting Interests” and when Directors’ actions are sanctionable.
Representation
Directors represent the people who elected them2. To speak as if an elected individual represents a party with no vote in the Foundation is inaccurate. To only speak that way is a misdirection or worse. Thus it is improper to describe a Director as “representing” an employer, or their regional LUG, or people of the same nationality (all arbitrary examples) - to insist on this is an accusation of breach of trust.
Their duty is to represent only those who elected them and act in the interests of the Foundation, and they are assumed to do so until there is proof to the contrary. It is very important never to describe someone as “the XXX representative” – to do so undermines their credibility, intentionally or otherwise, and accuses them of corruption.
Outside Interests
We all have outside interests - it would be impossible to find anyone who had none, especially in an open source community where everyone loves and uses the code! Instead we expect directors:
- to declare those interests if and when they become relevant;
- to keep their interests clearly separated; and
- to voluntarily recuse from decision-making when it would be unreasonable to expect them to act against outside interests.
We do not exclude Directors from a board’s business just because they have an interest in addition to the Foundation - it would be impossible as well as unjust. Rather, we trust them to serve the Foundation first when “on duty” and keep their various interests properly separated. We also require them to disclose relevant interests so we can understand and allow for their situation. It is up to them to recuse from voting or (in the extreme) from discussion.
It is also important to note that outside interests are not the exclusive domain of employment. They arise whenever someone has an interest outside the Foundation they are elected to serve. Investments, other elected positions, family, clubs they belong to, political alignments, national identity and more can all create interests that could come into conflict with their responsibility to the Foundation. Even personal enmities and grudges could count and be disclosed.
Whenever an interest becomes relevant it should be mentioned. It can then be allowed-for in decision-making. In the Board meetings I run for non-profit entities3, we actually have an early agenda section at every meeting where we ask Directors to state any interests they hold which might come into consideration in the light of the agenda, and indicate how they will be managed. With that done, affiliations and interests do not need to be raised again in the meeting.
CoI vs Breach of Trust
A “conflict of interest” (CoI) is the description for when a person cannot be expected to prioritise one interest over another. It is a neutral term - someone with a CoI has done nothing wrong and should not be sanctioned or excluded. Boards should have a CoI policy that provides guidance.
The correct term for a sanctionable act here is breach of trust. That is when a director actually prioritises an external interest over the one they have a duty to uphold, or when they proceed with a matter without disclosing a CoI4. Other attempts to weaponise the term “CoI” must be rejected - I try to use a model CoI policy such as once approved by the US IRS so as to avoid this.
Where someone has declared an interest but then still taken an action that prioritised it over the Foundation, or failed to declare an interest in a conversation where others should have been made aware, they have acted in breach of their duty to the Foundation. That’s where the red line is drawn. A breach of trust is a significant and sanctionable matter that may also be an illegal act, and arguing later you didn’t think the thing was significant is no defence - disclose or be damned!
This is about charities that serve the general public (in the US 501(c)(3) organisations). These are not to be confused with trade associations (in the US 501(c)(6) organisations), or B-Corporations, which exist only to represent the interested parties who elect their directors, although they are likely to follow a similar approach given the inherent competing interests of their directors.
This is not to say they “represent” in the sense of seeking electors views for each decision – they represent the whole electorate, not just “their” faction. Rather, the electors have a duty of care towards the Foundation, and their elected representatives carry out the majority of this duty to the best of their ability and in the interests of the Foundation.
This article represents comment on my preferred practice with various non-profits, which all have their own legal advisors. It is not itself intended as legal advice.
In some jurisdictions, having a conflict of interest policy is a precondition to gaining charitable status. A Board that does not act when there is a breach of trust may be putting its charitable status at risk.
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