"A conflict of interest is any situation in which a trustee's personal interest or loyalties could, or could be seen to, prevent the trustee from making a decision only in the best interests of the charity."
This guidance taken from Charity Commission demonstrates the wide scope of conflicts of interest which can occur when a trustee is carrying out his duties.
This guide looks at some examples of the potential conflicts that can occur and provides practical guidance for Charity Trustees.
Profits from transactions with third parties
If a trustee stands to make a profit from a transaction with a third party, this will fall within the scope of the general rule that trustees should not make any kind of profit from such transactions or arising from their office generally.
This rule applies even where the trustee is acting in good faith, or at risk to himself, or where the beneficiaries are not prejudiced in any way.
The purchase of trust property by a trustee is another clear example of a situation giving rise to a conflict – a trustee acting on behalf of another cannot in the same matter act for himself.
This ‘self-dealing’ rule is based not only on the idea that a trustee cannot be buyer and seller, but also more generally that a trustee's interests and duty should not conflict.
The wider rule against conflicts of interest
Of course there will be situations where there is no obvious "transaction". The trustee may not stand to benefit personally but they may be in a position where their decision-making could be influenced by their other interests.
These "conflicts of loyalty" are not unusual in charities but can certainly give rise to significant difficulties.
It is important that charity trustees are able to recognise conflicts. A charity's governing document will often contain little information as to how conflicts can be identified.
It can therefore be helpful for a charity to have a ‘conflicts of interest policy’ to sit with the governing document. This document will provide more detail, specific to the charity's circumstances, as to how conflicts can be identified and managed. This can provide a useful point of reference for charity trustees, as well as management.
Certain conflicts may be authorised by a charity's governing document and it is prudent to check this as one of the first steps when a conflict is identified. Often the governing document will outline the procedure for managing conflicts so charity trustees should have regard to it for this reason also. If conflicts can be managed, this can avoid the need for trustees to resign or surrender their discretion to the court.
The rules around conflicts are not simple. If guidance is needed, we can certainly assist. In seeking legal advice as appropriate, and taking any steps subsequently recommended, trustees can also demonstrate they are properly meeting their responsibilities.