Keep it legal: Conflicts of interest

Scottish philosopher David Hume once said "truth springs from argument among friends", an apt description for the process of good governance.

Most board members rub along well, but conflict can of course occur. Passion is a prerequisite for trusteeship, and passionate people often have passionate arguments. I have only once witnessed an argument between trustees almost result in fisticuffs - a well-chaired argument is usually an effective means of identifying strategy.

One area of conflict that often arises between trustees is when personal interests clash with those of the charity. The Charity Commission's A Guide To Conflicts of Interest For Charity Trustees expects trustees to identify potential problem areas and ensure that trustee benefits are properly authorised.

Broadly speaking, a conflict occurs whenever a trustee's duty of trust is supplanted by personal interests, resulting in the trustee receiving a personal benefit. A common example is a payment for services provided to the charity - for example, a solicitor providing paid-for services to a charity of which they are a trustee. Trustees who are directors of a charity's trading subsidiary or another organisation are also potentially conflicted. User involvement can also throw up potential conflicts when beneficiaries become trustees.

People connected with trustees are also problematic. These include spouses and close relatives, trustees' business partners and businesses in which a trustee has a significant personal interest. For incorporated charities, the Companies Act 2006 widens the definition of 'connected persons' to include civil and same-sex partners, step-children and parents.

The Charity Commission provides guidance for the effective management and authorisation of conflicts of interest; transparency is the touchstone. Trustees can avoid a breach of duty, which could result in a Charity Commission inquiry and even criminal proceedings, by declaring any interests to the charity, which then enters them in a publicly available register of interests. Fellow trustees should also be reminded of ongoing interests by appropriate declarations at every meeting. A further recommendation is that all charities disclose benefits received by trustees in their reports and annual accounts.

- Tim Waldron is a solicitor at Coffin Mew LLP.

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