What, specifically, is a conflict of interest besides a few buzz words thrown about by managers, upset owners, and board members? And, to whom does it apply? Fortunately, boards are not left to make up or individually define conflicts of interest. The Colorado Common Interest Ownership Act (“CCIOA”), in conjunction with the Revised Nonprofit Corporations Act (“Nonprofit Act”), provides guidance regarding the same.
The controlling statute, found at C.R.S. § 38-33.3-209.5(1), requires associations to adopt policies, procedures, or rules concerning, among other things, how to handle board member conflicts of interest. Section 209.5 further requires any such policy to: (1) define or describe the circumstances under which a conflict of interest exists; (2) establish procedures to follow when a conflict arises, including how, and to whom, the conflict must be disclosed and whether a board member must recuse himself or herself from discussing or voting on the issue; and (3) the policy must comply with C.R.S. § 38-33.3-310.5.
Section 310 of CCIOA defers to the Nonprofit Act for assistance with defining conflicts of interest. The Nonprofit Act defines a conflicting interest transaction as a contract, transaction, or other financial relationship between: (1) an association and a board member; (2) an association and a party related to a board member (i.e. a spouse or other family member); or (3) an association and an entity in which a board member is a director or officer or has a financial interest. Further, the Nonprofit Act prohibits loans by an association to its board members or officers. An officer, for purposes of this provision, is defined to include officers of the association, and any other person to whom the board delegates responsibilities including, but not limited to, attorneys, managers, or accountants.
Conflicts as they Relate to Board Members:
Once an association has a policy in place, and said policy complies with both CCIOA and the Nonprofit Act, it is up to the board to make a proper determination with respect to individual conflicts which may arise. A board should investigate and review each conflict individually.
If the issue provides financial gain a conflict clearly exists and the board should follow its conflicts of interest policy. If the issue is not related to financial gain, the board should look at the facts, what the individual is actually gaining (if anything), how the “gain” may be construed by members in the community, and whether any argument may be made that it indirectly provides financial gain to a board member or related party.
If an association has concerns with any of the above categories or believes it will receive any push back from the members, the board should err on the side of caution, follow its conflicts of interest policy, and the conflicted board member should recuse him or herself—although this is not specifically required in the Nonprofit Act.
Conflicts as they Relate to Volunteers or Committee Chairs/Members:
With respect to volunteers, committee members, and committee chairs, the statutes also prohibit associations from loaning money to such individuals. However, the applicable statutes do not prohibit other types of gains for volunteers, committee chairs, or committee members.
The board should make sure all decisions that provide gain to a committee chair, member, and/or volunteer are vetted and are in the best interest of the community. Failure to do so could result in pushback from the members and could, potentially, foster mistrust of the board within the community.
For more information on conflicts of interest or for assistance drafting a conflicts of interest policy, please contact one of our attorneys at 303.432.9999.