Self-Dealing and Conflicts of Interest

This Content Collection defines conflict of interest and self-dealing in family philanthropy, and highlights the most common problem areas, including: excessive compensation, tickets to fundraising events, and overlapping board members. Also included are recommendations for steps that foundations can take to avoid these pitfalls, including regular training, maintaining lists of disqualified persons, and adopting travel and conflict of interest policies.

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Conflicts of Interest and Avoiding Self-dealing for Family Foundation Boards

Passages Issue Briefs

This Issue Brief includes a detailed history and descriptions of the self-dealing rules, with a particular focus on self-dealing as it relates to managing a foundation’s investments. The paper also features a collection of short vignettes on common questions and a one-page referral checklist for board members and staff.

Conflicts of Interest: Steering Clear of Potholes and Other Bumps in the Road

Article

Most family foundations prefer to focus on the business of giving, without having to worry about tripping over the sometimes obscure rules and regulations that govern this work. But the fact is that family foundation boards need to be aware of potential potholes on the road named philanthropy. Driving blind…

NCFP Webinars

December 11, 2014

Toeing the Line: Legal Pitfalls in Family Foundation Governance

Should we accept those tickets to the opening of the new local theater that just arrived in the mail? Can our family office charge our foundation for rent? Is it o.k. for us to pay Uncle Bob to manage the foundation’s investment portfolio? Can we make a grant to our…

February 11, 2016

Toeing the line, Part 2: Legal Pitfalls in Family Foundation Grantmaking

Is it possible to make grants to individuals or organizations that are not charities? Can we support grantees where one or more of our board members has a conflict of interest? What process do we need to follow with regard to our discretionary grants, and is there a limit to…

March 11, 2010

The Right Way to Handle Conflicts of Interest

National Center research shows that only about half of family foundations have a conflict of interest policy. Yet conflicts often arise if, for example, a board or staff member volunteers for or serves on the board of a nonprofit that seeks funds from the foundation. Two of our speakers, Diana…

Sample Policies and Practices

Conflict of Interest Policy (George Family Foundation)

Sample

The George Family Foundation (GFF) is committed to avoiding transactions or arrangements that give rise to a conflict of interest, potential conflict of interest, or the appearance of a conflict of interest. POTENTIAL Personal-Gain CONFLICTS No less than once a year, GFF Directors and staff will review a list of…

Conflict of interest policy (Mary Reynolds Babcock Foundation)

Sample

This policy delineates the responsibilities of Directors, staff members, or committee members who are not board members of the Mary Reynolds Babcock Foundation regarding two levels of conflict of interest. The first level is a conflict of loyalties, such as serving on the board of any applying organization but having…

Conflict of interest statement (Andrus Family Philanthropy program)

Sample

The Andrus Family Fund’s conflict of interest statement provides the foundation’s definition of conflict, discusses possible conflicts and describes procedures to handle potential conflicts.

Conflict of interest policy (Self Foundation)

Sample

The South Carolina-based Self Foundation’s policy on dealing with potential conflicts of interest between board members and grantees. The Foundation encourages board members to play an active role in the community by serving as board members or other-wise being involved with a wide spectrum of nonprofit organizations. 

Ask the Center: Specific Questions on Conflicts of Interest and Self-Dealing

What is a disqualified person?

Article

Self-dealing is defined to include almost all business and financial transactions between a private foundation and its “disqualified persons.” So what is exactly is a disqualified person? The following is excerpted from the National Center for Family Philanthropy’s Passages Issue Brief, “Avoiding Conflicts and Self-Dealing for Family Foundation Boards,” by…

Naming Recognition: Is it ok to name a building after donors rather than the foundation?

Ask the Center

Our foundation, the Hearts and Hopes Foundation, provided a grant to a new research facility at a local university. The university has suggested naming the facility after our donors: i.e., the “John and Mary Smith Research Center.” Is this okay or do we have to name it the “Hearts and…

Is it self-dealing to attend a gala representing our foundation?

Ask the Center

I have a self- dealing question. Our family foundation is being honored by one of our grantees at their upcoming gala. I have read that attending the gala under such circumstances is considered official foundation business. However, if the foundation purchases tickets for staff and board members to attend the…

Recusals: When Should Board Members Excuse Themselves?

Ask the Center

If five out of our six board members are on another board of a non-profit, how do we make grants to that non-profit without a majority vote? What are the rules on recusals? This is a little tricky but the members are not required to recuse themselves as long as…

Can the Foundation Reimburse Expenses for a Family Gathering That Takes Place During a Board Meeting?

Ask the Center

A foundation may only incur expenses for meetings/events that are related to carrying out its exempt purposes (including reasonable and necessary administrative expenses).  If a board member wants to invite all board and family members to a family event, the foundation may only reimburse the board member for the expenses…

Can We Accept Complimentary Tickets?

Ask the Center

Complimentary tickets are fine. The real issue here is: are they really complimentary, or is it a quid pro quo? Generally, if there’s a good foundation reason to be there, in particular being recognized, you can go. 

Is it Self-Dealing to Give a Grant to a Specific Child’s Tuition?

Ask the Center

A trustee wants to give a grant for their child to attend a private school. The trustee then instructs the school, a legal 501(c)(3), to apply to the foundation for a scholarship grant that will be applied to the specific child’s tuition. Is this self- dealing? This is self-dealing. You’re…

Is it Considered Self-Dealing to Give Money to Local Institutions in Which the Donor Participates?

Ask the Center

You can make grants to any organization or cause if it serves the general public. So, the tax- center answer is, you can make a grant that benefits a charitable class, even if you’re in that charitable class. For example, if you are a breast cancer survivor and you want…

Can You Avoid Conflict of Interest and Have the Family Office CFO on the Investment Committee?

Ask the Center

Yes. Conflicts of interest of this type come up all the time. You shouldn’t try to avoid conflicts, because they’re impossible to avoid. At some point, they will come up. The way to handle a conflict is to be trained about what may come up, to be very clear about…

May Our Board Pay a Disqualified Person for Services Such as Portfolio Management?

Ask the Center

May our board pay someone for portfolio management if they are an employee of a company owned or led by a board member and direct descendant of the foundation’s father? Yes, even if the individual being employed to do that work is a disqualified person, paying someone reasonable and necessary…