Fiduciary Duties of officers and directors of Not For Profit companies and how best to avoid conflicts of interest

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Officers and directors owe a fiduciary duty to the not for profit company. Simply stated, this means that directors and officers of the company must act in the best interests of the company at all times.

Under the Companies Act 2014 the director’s fiduciary duties have been codified for the first time. The 8 fiduciary duties of a director owed to the company as listed in the Act are:

1. Act in good faith and in the best interests of the company as a whole
2. Act honestly and responsibly in relation to the company’s affairs
3. Act in accordance with the company’s constitution & exercise powers only for lawful purposes
4. Not to use company’s property for their own or others personal gain unless approved by company’s members or agreed in constitution
5. Not to fetter discretion unless permitted by the Company’s constitution or entered into in the Company’s interests
6. To avoid conflict
7. To exercise due care, skill and diligence
8. To have regard to the interest of all the company’ members

A conflict of interests arises whenever an officer or director places a competing interest over the best interests of the not for profit organisation. Competing interests are usually business, personal, financial, or family related.

What could have been done to avoid a conflict of interest?

• Require directors and officers to sign a conflict of interest policy each year requiring them to disclose conflicts of interest; and
• Exclude the officers or director with the conflict from all decision making processes involving the conflict.

Conflict of interest policies should be included in the Company’s Corporate Governance policy document, but conflict of interest policies are more effective if the company requires all its officers, directors, and employees to review and sign a new conflict of interest policy each year. The conflict of interest policy should provide a concrete definition of what conduct creates a conflict of interest, thus enabling the Directors, Officers and staff to identify potential conflicted situations. The policy should require the conflicted officer or director to fully disclose all facts regarding the conflict to the board. Finally, the policy should provide a procedure for minimizing or eliminating the conflict of interest. This is usually done by excluding the Directors or Officers from the decision making process that involves the conflict.

Full disclosure and the exclusion of the conflicted Director or Officer from the decision making process puts the interests of the company first and foremost and will prevent a conflict of interest arising.

OSK is the official Audit and Accounting partner of the Federation of Irish Sport (FIS) and the preferred supplier of these services to the Federation’s members. Contact Deirdre McDermott Director OSK for further details on the fiduciary duties of officers and directors of not for profit companies.

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