A conflict of interest (COI) policy is a foundational compliance requirement for many nonprofit corporations.  Most state nonprofit corporation statutes prohibit interested directors from engaging in business with the corporation when a conflict of interest exists.

For nonprofits that receive federal funding, federal grant rules often require a COI policy as a baseline. For example, the Health Resources and Services Administration’s (HRSA) Federal Financial Assistance Conflict of Interest Policy requires non-federal entities (NFEs) receiving HRSA funds to adopt a written policy that:

• Defines when outside activities, relationships or financial interests are proper or improper;
• Mandates advance, written disclosure of such interests;
• Provides a process to review and address them.

Further, under the federal grant assurances (e.g., per the SF-424 application process), recipients must promise to “disclose in writing any potential conflict of interest … in accordance with applicable federal awarding agency policy.”  These standards align with the Uniform Guidance (2 C.F.R. Part 200) requirements regarding conflict of interest in procurement and financial management.

While a COI policy meets these minimum legal thresholds, a Standards of Conduct board policy extends well beyond the narrow focus on financial interests to proactively shape board behavior, expectations and commitments. Such a policy can codify principles of ethical leadership, respect and stewardship—articulating how board members should act not just to avoid conflicts, but to promote the organization’s mission, equity, transparency and accountability. The Standards of Conduct can require regular training, define confidential information protocols, set expectations for attendance, collegiality and constructive participation and establish clear processes for escalating concerns or remediation of misconduct.

For example, if a board member confronts an employee of the organization related to the employee’s performance, how should this be handled? Does the employee believe the board member is speaking for the entire board when being reprimanded? Should the board member even be permitted to speak to staff about operational issues?  Answers to questions like these will not be found in the corporation’s bylaws or its COI policy.  This is why a Standards of Conduct policy is a critical document that all nonprofit boards should consider adopting.

A robust Standards of Conduct policy offers several governance advantages over relying solely on a COI policy by:

1. Enhancing board cohesion and trust: by clarifying norms around collaboration, communication and decision-making, it reduces ambiguity and potential tension among board members.
2. Strengthening mission alignment: when the board is guided by shared values—not just by “what we can’t do”—members are better positioned to act strategically, ethically and proactively for the community.
3. Mitigating reputational and operational risk, thereby protecting the organization as a whole.

Incorporating both a Conflict of Interest policy and a comprehensive Standards of Conduct policy ensures that nonprofit boards uphold the highest standards of governance, ethical integrity, and organizational accountability.

If your organization needs assistance drafting a Standards of Conduct policy, please contact Gabriel S. García at ggarcia@feldesman.com.