Conflicts of interest should either be avoided or managed in such a way that the foundation and its board and managers are protected from liability or unwelcome publicity. By answering the following five questions and by following the processes recommended in this paper, foundations can minimize legal risks; protect themselves and their board members and foundation managers against bad publicity; and most of all, ensure the integrity of their decision-making process. The five questions are:
- Is this transaction a conflict of interest or could it be perceived as such by others?
- Is it prohibited by the self-dealing rules under the Internal Revenue Code?
- Even if the transaction is not prohibited by the self-dealing rules, is it unfair to the foundation?i.e., does it improperly benefit another person or organization?
- Does the transaction create an appearance problem? How would it look on the front page of tomorrow's newspaper or to the foundation's founders?
- Has the foundation followed its conflict-of-interest policy and documented that fact?
This paper outlines the law and the factors that should be considered when answering these questions. It also includes examples of situations that foundation regulalry encounter to offer the reader an opportunity to test his or her understanding.