You are the chair of the board of a not-for-profit organisation.

You are told by an employee that a board member’s wife is a shareholder of a company which the not-for-profit organisation hired to provide training to its staff. The board member did not disclose this fact.

Even the perception of impropriety / conflict of interest can cause huge problems for a not-for-profit organisation.

What do you do?

There are a number of steps which are advisable for you to take:

  • The shareholdings and directorships of most companies are recorded with the Australian Securities and Investment Commission (ASIC). At first instance it would be prudent to perform an ASIC search to see who the directors and shareholders of the contracting entity with the not-for-profit are.
  • You should review the conflict of interest policy of the organisation and the organisation’s constitution / rules.
  • You should present to the board member in writing the information which you have found including:
    • the allegations being made against them;
    • any supporting materials (eg the ASIC search, board minutes etc);
    • a copy of the organisation’s Constitution / rules / conflict of interest policy; and
    • outline the potential consequences if they have been found to have breached the organisation’s Constitution / rules / conflict of interest policy.
  • You will need to allow them a reasonable time to respond (usually at least 7 days) and the opportunity to obtain independent legal advice.

Transparency as to the allegations and the investigation process are essential. Procedural fairness to the board member being accused of wrongdoing is also very important – you must give them an opportunity to respond in writing to the allegations made against them.

  • Once the process has taken place, you and the remainder of the board must decide how to handle the matter in accordance with the organisation’s Constitution / rules / conflict of interest policy. It is also advisable to obtain independent legal advice to assist the board with its decision.

Important Tip

In many instances, although the process outlined above can be performed internally by the organisation, an independent external legal advisor is retained to conduct an investigation and make a recommendation to the board.

The benefit of this approach is to ensure that the process is conducted in a fair and transparent manner and that there isn’t the perception that the not-for-profit is “policing itself” or “looking after its own”.

The other benefit is that in the unlikely event that the matter becomes litigious, then the fact that the board had an independent solicitor investigate and advise the board assists with submissions that the board and the organisation’s actions were reasonable.


About the Author

Catherine Ballantyne

A business disputes specialist, Catherine is a trusted advisor to businesses and individuals in obtaining successful outcomes. Businesses rely on Catherine as a trusted advisor as well as lawyer in guiding them through complex litigation and disputes.

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