Nonprofits serve the broad public good, and when board members fail to exercise reasonable care in their oversight of the organization they are not living up to their public trust. In addition, board members have a legal responsibility to assure the prudent management of an organization's resources. In fact, they may be held liable for the organization's actions. Conflict of interest relates broadly to ethical behavior, which includes not just legal issues but considerations in every aspect of governance. The third level of behavior can pose especially difficult ethical dilemmas for nonprofit board members.
Self monitoring is the best preventative measure.
Institute a system of checks and balances to circumvent actual or potential conflict of interest, beginning with well defined operating policies on all matters that might lead to conflict. Most important, create a carefully written conflict of interest policy based on the needs and circumstances of the organization. Ask each board and staff member to agree in writing to uphold the policy. A conflict of interest policy should be reviewed regularly as part of board self assessment. Board members and staff members in decision-making roles should make known their connections with groups doing business with the organization.