Enhanced Prompt: Conflict of Interest Policy

You are tasked with drafting a comprehensive Conflict of Interest Policy suitable for corporate or nonprofit organizations. This document must be professionally structured, legally sound, and tailored to protect the organization from conflicts that could compromise decision-making integrity or fiduciary duties.

Begin by conducting thorough research to establish best practices and legal standards. Search authoritative legal resources including the American Bar Association Model Rules, state bar association ethics guidelines, IRS guidelines for nonprofit governance (particularly Publication 557 and Form 1023 instructions), and reputable legal information providers such as Nolo and LegalZoom. Verify all legal definitions and procedural requirements against official sources to ensure accuracy and compliance with current standards.

Review any documents the user has uploaded to identify organization-specific information, existing governance policies, bylaws, or prior conflict disclosures that should inform the policy's scope and procedures. Extract relevant facts including the organization's legal structure, board composition, key personnel roles, and any industry-specific regulatory requirements that may apply.

Document Structure and Content Requirements

Purpose and Scope Section: Draft a clear statement articulating why the policy exists—to protect the organization's integrity, ensure transparent decision-making, and comply with legal and ethical obligations. Define the policy's applicability, specifying which individuals are covered (board members, officers, employees, key contractors, substantial contributors for nonprofits). Address whether the policy applies to both actual and potential conflicts, and clarify the organization's commitment to ethical governance. Reference relevant legal frameworks such as state nonprofit corporation laws, Sarbanes-Oxley provisions for applicable entities, or industry-specific regulations.

Definitions Section: Provide precise legal definitions for critical terms. Define "conflict of interest" as any situation where an individual's personal, financial, or professional interests could improperly influence their judgment or actions on behalf of the organization. Define "interested person" to include anyone in a position to influence organizational decisions who has a direct or indirect financial or personal interest in a transaction. Define "disinterested director" or "independent director" according to applicable corporate governance standards. Include definitions for "financial interest" (encompassing ownership, investment, compensation, and prospective employment), "family member" (specifying degrees of relationship), and "material financial interest" with appropriate thresholds. Cite authoritative sources such as the ABA Model Nonprofit Corporation Act, Revised Model Business Corporation Act, or relevant state statutes.

Identification of Conflicts Section: Describe the types of situations that constitute conflicts, providing concrete examples to aid recognition. Address financial conflicts including business transactions with the organization, competing business interests, gifts or entertainment from vendors or parties doing business with the organization, and personal use of organizational assets or information. Cover non-financial conflicts such as family relationships with employees or contractors, service on boards of competing or related organizations, and personal relationships that could affect objectivity. Explain the duty of each covered person to proactively identify potential conflicts before they arise. Reference best practices from organizations like the Council on Foundations, BoardSource, or Public Counsel regarding conflict identification protocols.

Disclosure Procedures Section: Establish clear, mandatory disclosure requirements. Specify that covered individuals must disclose all potential conflicts in writing, detailing the timing requirements (annual disclosure statements, plus immediate disclosure when new conflicts arise or transactions are proposed). Describe the disclosure form or questionnaire that will be used, including what information must be provided (nature of the interest, parties involved, financial details, relationship to the organization's activities). Designate who receives disclosures (typically the board chair, governance committee, or compliance officer) and how they will be documented and maintained. For nonprofits, ensure procedures align with IRS Form 990 reporting requirements and state charitable solicitation regulations. Verify these procedures against IRS guidelines and state-specific nonprofit governance laws.

Review and Resolution Section: Detail the step-by-step process for evaluating disclosed conflicts and determining appropriate action. Explain that the interested person must recuse themselves from discussion and voting on the matter, leaving the room during deliberations if required. Describe how disinterested directors or committee members will assess whether a conflict exists and its materiality. Outline resolution options including approval with safeguards (competitive bidding, independent valuation, enhanced disclosure), modification of the transaction to eliminate the conflict, or prohibition of the transaction. Specify documentation requirements for all conflict reviews, including the basis for decisions and votes taken. Address how to handle situations where a quorum cannot be achieved due to conflicts. Reference conflict resolution best practices from state bar associations and corporate governance authorities.

Compliance and Enforcement Section: Establish mechanisms to ensure ongoing adherence to the policy. Describe annual training requirements for all covered persons, including new board member orientation on conflict obligations. Specify that the organization will maintain a conflicts register or log documenting all disclosures and resolutions. Address monitoring procedures, such as periodic reviews of transactions with related parties and annual certification processes. Define consequences for violations, which may include removal from the board or employment, rescission of conflicted transactions, restitution of any improper benefits, and potential legal action. For nonprofits, note that violations could jeopardize tax-exempt status. Designate responsibility for policy administration and periodic review (typically the governance or audit committee).

Acknowledgment Section: Include a formal acknowledgment form to be signed annually by all covered persons. The form should confirm that the individual has received, read, and understood the policy; agrees to comply with its requirements; and has disclosed all known conflicts or certified that none exist. Provide space for listing any disclosed interests. Ensure the acknowledgment language is legally sufficient and that signed forms will be retained in organizational records. Verify the form's adequacy against standard templates from legal resources while ensuring it meets the organization's specific needs.

Final Document Assembly

Once you have gathered all necessary legal research, verified definitions and procedures against authoritative sources, and incorporated any organization-specific information from uploaded documents, create a polished, professional Conflict of Interest Policy document. The document should use clear, accessible language while maintaining legal precision, include appropriate section numbering and formatting, and be ready for board review and adoption. Ensure all legal citations are properly formatted and all procedural requirements are actionable and enforceable.