- In practice, the opposite is often true: nonprofits rely heavily on public trust, funder confidence, and (for registered charities) their standing with the Canada Revenue Agency.
- A conflict of interest generally arises whenever a director (or a closely connected person, such as a spouse or business partner) has a personal or financial interest in a matter that…
- The director with the interest is generally in the best position to identify it — waiting for someone else to notice creates avoidable risk.
Nonprofit boards are often made up of people with deep ties to the community or cause the organization serves — which is exactly why conflicts of interest come up so often. A board member who also runs a business that could supply the nonprofit, or whose family member is up for a staff position, has not done anything wrong simply by being in that position. What matters is what happens next.
This article explains, in plain language, how conflict of interest obligations generally work for directors of an Ontario nonprofit corporation under the Not-for-Profit Corporations Act, 2010 (Ontario) — ONCA.
Why This Matters More for Nonprofits, Not Less
It is a common misconception that conflict of interest rules matter less for a volunteer nonprofit board than for a for-profit company. In practice, the opposite is often true: nonprofits rely heavily on public trust, funder confidence, and (for registered charities) their standing with the Canada Revenue Agency. A poorly handled conflict — even one that never involved actual wrongdoing — can do real reputational damage.
Directors of any Ontario corporation, including an ONCA nonprofit, owe a fiduciary duty to act honestly and in good faith in the best interests of the corporation, along with a duty of care to act as a reasonably prudent person would in comparable circumstances. Conflict of interest management is one of the most practical, everyday expressions of that fiduciary duty.
What Counts as a Conflict of Interest
A conflict of interest generally arises whenever a director (or a closely connected person, such as a spouse or business partner) has a personal or financial interest in a matter that is, or could reasonably be, before the board. Common examples for nonprofits include:
- The organization considering a contract with a company the director owns or works for
- A hiring or promotion decision involving the director's family member
- A grant or funding decision that would benefit an organization the director is also affiliated with
- A director voting on their own compensation, expenses, or reimbursement claim
Having a connection is not itself the problem — how it is handled is what the law, and good governance practice, actually cares about.
The General Disclosure-and-Recusal Process
- Recognize the conflict early. The director with the interest is generally in the best position to identify it — waiting for someone else to notice creates avoidable risk.
- Disclose it to the board, in enough detail for the other directors to understand the nature and extent of the interest.
- Step out of the discussion and the vote on the matter, unless the board has a specific, considered reason to proceed differently.
- Record the disclosure and recusal in the minutes, so there is a clear paper trail showing the board followed a proper process.
- Revisit standing conflicts periodically — for example, through an annual declaration where directors confirm any interests that could reasonably come up again.
Should Your Nonprofit Have a Written Policy?
ONCA imposes the underlying fiduciary duty regardless of whether a nonprofit has a written conflict of interest policy, but relying on the bare legal duty alone tends to produce inconsistent results in practice — different directors interpreting "conflict" differently, or nobody quite sure whether recusal from a discussion also means recusal from the vote. A written policy gives the board (and any funder or auditor reviewing your governance) a clear, repeatable standard to point to.
Checklist: Building a Conflict of Interest Policy
- [ ] A clear definition of what counts as a conflict, with examples relevant to your organization
- [ ] A required disclosure step, ideally in writing, before the matter is discussed
- [ ] A clear recusal rule covering both discussion and voting
- [ ] A record-keeping requirement so disclosures and recusals appear in the minutes
- [ ] An annual (or more frequent) standing-interest declaration for all directors
- [ ] A process for what happens if a director does not disclose and a conflict is discovered later
Frequently asked questions
Does a director have to leave the room entirely, or just avoid voting?
Best practice, and what most well-drafted policies require, is that the director step out of both the discussion and the vote — not merely abstain while remaining present to influence the conversation. Your organization's own policy should say so explicitly.
What if the conflicted director is also the only person with relevant expertise on the topic?
This comes up often. The board can still hear from the director as a source of information before they step out, provided that is disclosed and recorded, but the director generally should not participate in the board's actual deliberation and decision.
Is a minor connection, like knowing someone socially, really a conflict?
Not every relationship rises to a conflict requiring recusal — the question is whether the director has a genuine personal or financial interest in the outcome. When in doubt, disclosing and letting the board decide is safer than deciding unilaterally that it does not matter.
Can the whole board waive a conflict and let the director participate anyway?
This is rarely advisable and depends heavily on the specific circumstances and your organization's policy. Even where technically permitted, it can undermine confidence in the decision. Get advice before treating a disclosed conflict as fully resolved simply because the other directors are comfortable with it.
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