Resources / What is a conflict of interest? Charity trustee conflicts explained
What is a conflict of interest? Charity trustee conflicts explained
A conflict of interest is any situation where a trustee's personal interests or loyalties could stop them deciding in the charity's best interests, or could look as if they might. Almost every trustee has one at some point. Having a conflict is normal. Hiding one is the problem.
What counts as a conflict of interest?
The Commission's guidance, CC29, describes two types.
Financial conflicts. A trustee, or someone connected to them, could get money or something else of value from a decision the trustees make. For example: a trustee's building firm quotes for the roof repair, or the treasurer's spouse invoices the charity for cleaning the hall. The charity might be getting a good deal. The conflict still has to be managed.
Loyalty conflicts. No money changes hands, but a trustee's duty to someone else could pull against the charity. For example: sitting on the board of another charity that is applying for the same grant, or being appointed to the board by a funder or the local council. The trustee may feel they owe that organisation their vote. In law they owe the charity their judgement.
Who is a connected person?
CC29 says a connected person is, in broad terms: a trustee's spouse or civil partner, their immediate family, their business partner, and any business the trustee owns or influences. For loyalty conflicts it can also include a trustee's employer, another charity they serve as trustee, the organisation that appointed them, wider relatives and friends. For some decisions, such as selling charity land or paying for goods and services, the law defines connected person precisely. If you are not sure whether someone counts, get advice before the decision, never after.
What are the five steps in CC29?
- Identify the conflict. Spot conflicts, or potential conflicts, early. The start of each trustee meeting is the natural place.
- Declare it. A trustee must tell the other trustees when an item raises a conflict for them, before any discussion. Make declarations a standing agenda item.
- Consider removing it. Sometimes the cleanest answer is to take the conflict away: use a different supplier, or in a serious case a trustee may step down.
- Manage it. If the conflict stays, decide how to stop it affecting the decision. For a financial conflict that means, as a minimum, the trustee takes no part in the discussion or the decision.
- Record it. Keep a written record of the conflict, how you managed it, and which rules you followed.
When must a trustee leave the room?
For a financial conflict, always for the decision itself: the conflicted trustee does not take part in the discussion, does not vote, and does not count towards the quorum. For loyalty conflicts the response scales with the risk. A serious one is handled like a financial conflict, with the trustee answering factual questions and then withdrawing. A low-risk one, declared and minuted, may allow the trustee to stay if the others agree.
Watch the quorum. When a conflicted trustee withdraws, enough unconflicted trustees must remain to make a valid decision. If a small board cannot manage that, CC29 points to appointing new independent trustees, or asking the Commission to authorise the conflict.
One rule is stricter still: before any payment or benefit goes to a trustee or a connected person, the charity must have authority for it, from the governing document, a legal power, or the Commission. Declaring the conflict is not enough on its own. Read can charity trustees be paid? for how those rules work.
What do we record?
- Declarations at every meeting. First items on the agenda, even when the answer is "none". A nil return proves the question was asked.
- A register of interests. Every trustee declares their interests on appointment and renews the declaration each year. The register lists the interest, the date, and how it is managed.
- Minutes that show the handling. Who declared what, who withdrew, and that the decision was taken in their absence. Months later, this minute is what protects the trustee and the charity.
When you are ready to write it down, use our free conflicts of interest policy template, which comes with the register wording built in.
What happens if we get it wrong?
CC29 is blunt about the consequences. A decision taken with an unmanaged conflict can be challenged and may not be valid. If the charity loses money as a result, the trustees can be jointly liable to cover the loss from their own funds, and benefits taken without authority can have to be repaid. Even the appearance of a conflict can damage the charity's reputation and its funding. Unmanaged conflicts are also among the commonest findings in the Commission's published inquiries, where they can count as evidence of misconduct or mismanagement. Read when trustees get it wrong for what those inquiries teach.
What if everyone knows everyone?
In a village charity, everyone is connected. The only electrician on the board is married to the shop's bookkeeper, and half the trustees sing in the same choir. That is not misconduct, and CC29 does not expect a small charity to find strangers. It expects the connections to be visible and handled: on the register, declared at the meeting, and out of the room for the decision that touches them. In a small community the register and the minute are what make the closeness safe.
Scope: this guide covers registered charities in England and Wales. It is Commission guidance explained, not legal advice.