As a charity trustee, you must put the interests of the charity before your own interests or those of any other person or organisation including those responsible for your appointment. Where you cannot do that, there may be a conflict of interest.
A conflict of interest exists when your duty to act in the interests of the charity conflicts with:
Conflicts of interest can and do come up: it is how you manage them that is important.
In this section we explain how you as a charity trustee can prepare for potential conflicts of interest, what you could do if a conflict arises, and highlight common examples of conflicts of interest.
What is a conflict of interest?
A conflict of interest is any situation where there is a potential for a charity trustee’s personal or business interests (or the interests of someone they are connected with) to be different from the interests of the charity. In this situation, it may sometimes be difficult for the charity trustee to make an impartial decision. However, with proper handling charity trustees can overcome these difficulties.
There are two main types of conflict of interest:
In both cases, the charity trustee duties require you to act in the interests of the charity.
Where there is an ‘appointment conflict’ the charity trustee must put the interests of the charity first. However, where another duty prevents the charity trustee from putting the interests of the charity first they must:
It is important that even where there appears to be a conflict of interest, whether it materialises or not, you take appropriate steps to manage the conflict and be seen to be acting in the best interests of the charity.
The term ‘conflict of interest’ can cover a range of situations and may also be called a ‘conflict of roles’ or ‘conflict of duty.
Examples of what is not a conflict of interest:
Having a conflict of interest does not necessarily mean that anyone has acted improperly. As charity trustees you all have a collective responsibility to manage conflicts of interest and to act clearly in the charity’s best interests.
There are four key steps to dealing with conflict of interest.
If members from a linked organisation dominate the make-up of your Board of charity trustees this can lead to a risk of recurrent conflict of interest. How you manage this risk is very important.
What should be included in a conflict of interest policy?
A conflict of interest policy should set out:
SCIOs must have procedures for dealing with any conflict of interest within their SCIO constitution.
See the sources of help, advice and best practice section for links to example conflict of interest policies.
When a charity trustee is aware of a conflict of interest and they feel unable to put the interests of the charity first, they must withdraw from the discussion or decision concerned.
It may also be appropriate for charity trustees to withdraw from discussions in other circumstances of conflict of interest. Where they do not, they should be able to demonstrate that they have acted in the interests of the charity.
The charity trustees should make sure there is a record of who took part in the discussions and decisions. Where there is a conflict and the conflicted charity trustee still takes part, how this is in the best interests of the charity needs to be explained.
The trustees need to put their own interests to one side and choose what is best for the charity. A clear record should be taken of the decision and why it was made.
However, if there is only one service user on the board then it might be felt that they should withdraw, which would be easier for the person concerned and does not affect the quorum.
What should you do if another charity trustee has a conflict of interest?
All charity trustees must act in line with the duty to protect the interests of the charity. This means that you and the other charity trustees must take collective responsibility to make sure that a breach of charity trustee duties is corrected and not repeated.
If you know another charity trustee is conflicted, and it is not declared, it is your duty to speak up.
If there is serious or persistent breach of duty by an individual, the other charity trustees should look at whether the governing document has the power to remove the charity trustee.
As charity trustees you must try to make sure that any breach of duty regarding conflict of interest is corrected and not repeated. Where there is a serious or persistent breach the charity trustee should be removed, providing the governing document allows. If the other charity trustees fail to do so, this could be considered mismanagement or misconduct in the administration of the charity.
As regulator, we are required to identify and investigate any apparent misconduct and, where appropriate can take protective action. See our Inquiry Policy for more details. Our response will be proportionate; where a charity trustee has acted honestly and reasonably.
If you fail to comply with these duties then this is misconduct and we do have powers to take action against charity trustees, where appropriate. Our response will be proportionate depending on the situation.
Where a charity trustee has acted reasonably and honestly it is unlikely to be treated as misconduct.
Find out more about what we can and cannot do and what to expect if we have a concern about your charity.
Here we set out the specific sections of charity law in Scotland relevant to each part of the guidance.