The Practical Side of Annual Conflict of Interest Disclosure Statements

Most nonprofit organizations have adopted a code of ethics, statement of values, or code of conduct. Within these statements there is always a reference to monitoring, oversight, and transparency related to conflicts of interest. Having a strong conflict of interest policy strengthens your code of ethics posture. Adding robust annual conflict of interest disclosure statements will project an even higher level of assurance that your organization takes its code of conduct seriously.

A conflict of interest policy by itself is not very effective without having annual conflict of interest disclosure statements completed and signed by Board members, senior management, and other interested persons. Without these disclosure statements, the responsibility to monitor conflicts of interest falls on the organization. With disclosure statements, the responsibility to report conflicts shifts to the interested person (the individual). This is both more effective and more consistent with best practices.

Although conflict of interest disclosure statements are widely used by nonprofits, the process for distributing and collecting these statements varies from organization to organization, and even from year-to-year for some nonprofits. Following a clear and consistently applied process is the key to success for this important practice.

1.         Use a Simple, Standard, and Clear Disclosure Statement

You do not need to get fancy here. Find a conflict of interest disclosure statement that is short and to the point. I prefer a statement that has a brief explanation of purpose followed by one or two common disclosure areas and a third open-ended statement to “disclose other areas of conflict not listed above.”

The two common areas usually cover conflicts related to: (1) family relationships (e.g., spouse, children, siblings, parents, and other close relatives that had transactions with the nonprofit during the year); and (2) business relationships (e.g., ownership or senior management of a business with which the nonprofit had transactions during the year).

2.         Have Clear Rules for Who is Required to Complete the Disclosure Statement

Your conflict of interest policy should define who is an “interested person” for your organization. Add categories with check boxes so it is clear that all different types of interested persons are signing the same disclosure statement. An example of the different categories used in these check boxes is as follows:

• Board member

• Officer (Board Chair, President, etc.)

• Committee member

• Chief of Staff (CEO, Executive Director)

• Senior Manager

• Manager

• Staff

Covering the top five categories is common, but having other managers and staff complete the disclosure statement enhances transparency and strengthens your organization’s culture of ethical conduct.

3.         Use a Set Annual Target Completion Date

Identify a target completion date that can be easily recognized and consistently followed each year. Most commonly, organizations require interested persons to complete their disclosure statements at the official annual meeting (usually the first or last meeting of the fiscal year).

An annual process is strongly preferred over merely completing disclosure statements at the beginning of a new Board term (which might span multiple years). For off-cycle Board additions or new senior management hires, that individual should complete a disclosure statement within two weeks of starting and then complete the statement again at the annual meeting, even if this is less than one year later.

Planning Tip – Reach out early to Board members, staff, and other interested persons that will be required to complete conflict of interest disclosure statements. Do not assume they understand the purpose and how the process works. Take advantage of this educational moment to highlight the benefits of a transparent culture of ethical conduct and how this reflects positively on your organization. Use this opportunity to remind them that they also have a responsibility to disclose conflicts when they arise, and not merely to wait until the annual disclosure statement is distributed.

A simple and consistently applied process for annual conflict of interest disclosure statements will have many benefits and be straightforward to manage.