Conflicts of interest

Trustees have a duty to act in the best interests of the charity and its beneficiaries. They must avoid situations where their personal interests or their duties conflict with their duty to the charity unless they have been authorised. The duty also extends to conflicts that arise because of persons connected with them. 

Conflicts of interest can occur in many ways.

A conflict of interest can occur when a trustee stands to benefit personally from the charity - for example, if they or a connected person receive a grant from the charity as a service user or a payment for a professional service. 

Trustees cannot receive a benefit from the charity unless it is allowed under the law or by the charity’s governing document: such authorisation might involve approval from the Charity Commission.

A conflict of interest can also occur when a trustee has a conflict of loyalties between the charity and their personal or other interests – for example, if they are a member of a local authority that funds the charity or a trustee of a competing charity.

Any conflict of interest should be carefully managed. It is good practice for trustees to agree a conflict of interest policy record and regularly record conflicts in a register, and note them in board minutes.

A conflict of interest policy sets out the procedure to be followed if a trustee declares an interest. It should include a register of interests where trustees disclose outside interests and those of connected persons that might potentially conflict with their role as a trustee.

If a trustee has a conflict of interest which creates a real danger of bias (or could be perceived to do so) they should withdraw from the relevant part of the meeting where the relevant decision is to take place.

The Companies Act 2006 brought in new statutory duties for trustees of charitable companies. These include duties to avoid conflicts of interest, not accept benefits from third parties and declare an interest in a proposed transaction. These duties include a duty to avoid conflicts of loyalty.

Trustees of charitable companies must ensure they are properly disclosing and authorising conflicts of interest in line with their statutory duties.

The practical implications of the new duties are complex. Charitable companies are advised to check their governing documents and conflicts of interest policies to ensure they are consistent with the new duties. The Charity Commission have issued guidance on this subject. Trustees should generally also seek professional advice.