The Necessary Pain of COI Disclosure


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I recently came across an analysis conducted by the website BioPharma Dive which found that 12 of 19 major pharmaceutical companies had at least one board member who was also a leader of a major nonprofit medical health system. What I found interesting about BioPharma Dive's article covering this study was its particular focus on how the fraught nature of allowing healthcare executives to hold seats on pharma boards seemed to have gone unaddressed by several institutions and unstudied by the medical field at large. While most of these organizations defended the dual relationships as mutually beneficial and mitigated by the institution's conflict of interest (COI) policies and disclosure requirements, BioPharma Dive's analysis highlighted several disclosure inconsistencies that appeared to undermine the intent of those policies. 

Taking in BioPharma Dive's findings (and the Memorial Sloan Kettering scandal that inspired the review) made me think about the everyday COI challenges I've noticed in the nonprofit sector -- one in particular being how difficult it can be for a nonprofit to operationalize its COI policy. I don't mean to suggest that the health systems reviewed by BioPharma Dive didn't enact their policies properly, but it didn't surprise me to read that there appeared to be some noticeable gaps in transparency when it came to their pharma board relationships.  It made me wonder what their COI policies look like in action and whether everyone was on the same page about what a COI was and how to disclose one.

After all, when it comes to COI disclosure, the stakes are pretty high for nonprofits, particularly those that accept donations and/or public funding to support their programs. The IRS tax code and other laws surrounding nonprofit corporate status strictly prohibit things like private inurement and self-dealing. This makes it essential for nonprofits to demonstrate that the individuals calling the shots (whether they be board members or senior officers) aren't doing so to further another interest, such as a profit-driven company with which they might be connected. 

POLICY TRENDS

Best practice literature, such as the National Council of Nonprofit's guidelines on managing COIs, will tell you that it isn't enough to simply have a COI policy. Practical processes need to be put in place to ensure the officers, directors and staff who are covered by the policy can follow it appropriately. These processes include things like:
  • Annually collecting policy acknowledgements and disclosure statements;
  • Having the board chair and/or legal counsel review disclosure statements;
  • Routinely encouraging COI disclosures at board and committee meetings; and
  • Consistently documenting COIs in official meeting minutes.  
These are all important practices, and most nonprofits make a good faith effort to put them into action. And yet, not all nonprofits do much beyond adopting a policy. For example, as BoardSource's 2017 National Index of Nonprofit Board Practices finds that "15 percent of executives report that their boards are not reviewing and signing conflict-of-interest disclosures on an annual basis." In my own experience I have observed how organizational inertia, competing priorities and even confusion over what constitutes a conflict and how it should be resolved can serve as barriers to enacting COI policies.

POLICY PAINS

The truth is, nonprofit COI policies can be a real brain-bleed. I often come across policies that are so heavy with legalese and extensive disclosure guidelines that I wonder how an every-day nonprofit volunteer can fully understand when, where, what and how to disclose. But even the most plainspoken policies can confuse and overwhelm volunteers who wonder whether their disclosures might preclude them from serving entirely. Further, boards with limited access to legal counsel can easily struggle to resolve conflicts when they are disclosed either annually or situationally.

In addition to understanding the organization's particular COI policy, board members and officers need education and training on their fiduciary responsibilities to better understand the meaning of conflicts of interest and how they might impact their own deliberation and decision-making. After all, it is commonly the responsibility of the board to determine whether a conflict of interest exists at the time of disclosure. So, how is that possible when individual board members have not been given a clear framework for how to perceive different relationships in relation to their own organization? Where is the line and what empowers the board to enforce it?

POLICY INTO PRACTICE

This is why I find it so important to engage support staff and board members alike to make sure COI disclosure processes are mapped out and delivered effectively. To bridge the operational gap, some of the tricks of the trade I have learned over the years have been to:
  • Incorporate annual disclosures into routine on-boarding and orientation activities 
  • Use annotated agendas to script disclosure reminders at board meetings
  • Make COI education and disclosure an early part of nominations and appointments processes 
  • Post COI policies to the organization's website to make them easily accessible to leaders, prospective volunteers and the general public.
A nonprofit would also do well to engage legal counsel to educate directors and officers about their duty of loyalty and to ensure that there is a common understanding of what COIs look like in that organization's particular context. Support staff, such as governance specialists and executive assistants can also play an important role in making sure disclosure processes are executed to the fullest extent required by policy. Staff members charged with facilitating those processes should also be empowered to speak up if steps get missed or potential issues get overlooked. While the CEO and Board Chair are accountable enacting COI policies, sharing responsibility for implementation with other staff and board members can do a lot to increase awareness and promote the importance of disclosure.

The underlying hope and goal here is to establish corporate processes that will nurture a culture of transparency that reaches across an organization. For example, even if a board or committee determines that a fraught relationship poses no actual conflict, the very act of disclosure still serves to keep leaders open and honest about their relationships and other interests that may or may not directly impact the nonprofit. At the end of the day, enacting COI policies may feel like a heavy lift and it may even feel invasive... but it's necessary to protect the organization's integrity, reputation and existence.

Rachel Miller-Bleich, MA, CAE, a nonprofit governance consultant, is Principal and Owner of MillerBleich Consulting, LLC. Learn more at www.millerbleichconsulting.com  



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