Question: One of our Board members is a partner in a business that just landed a contract with our organization. No one said anything at the meeting. Some didn't know that anyone on the Board had a stake in the contracting company. Those that did, including me, didn't say anything. It was pretty awkward. Should I have said something?
Answer: No, your fellow board member who owns part of the company should have said something. When it became apparent to you that he was not going to declare a potential conflict of interest, then you should have said something.
Boards are accountable for all the actions they take. Should there be any criticism or liability later, the Board would certainly be exposed to censure, if not legal action, for allowing a conflict of interest to occur. That would be particularly true if it were shown that members of the Board knew about it.
What you experienced is common to boards. Courtesy and politeness take precedence over fiduciary responsibility. That is the perfect recipe for disaster.
Your board would be wise to have a limitations policy that no board member can profit from being a member of the board. And no board member may fail to declare a potential conflict of interest.
It may be legitimate for a board member to receive some financial benefit under some limited circumstances. For example, in a similar situation where the potential conflict of interest is fully disclosed, the board may determine that doing business with a board member is in the best interest of the organization. They may even declare the decision to the members and other stakeholders.
Being transparent invites scrutiny. That openness alone gives people confidence that nothing underhanded is going on.
I would suggest that even now that the decision has been made that you do the difficult thing by calling the board chair and also the fellow board member (The two aren't the same, I hope) to inform them that you will be raising the issue at the next meeting.
In the final analysis your responsibility is to the organization, not its board members.
Les Stahlke, President
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