May I please be recused?: Avoiding conflicts of interest

Before the holidays, we blogged on some of the recent questions our compliance team has received on the bylaws, board of directors and other federal credit union governance issues. Today’s blog takes a look at another related question: What exactly is a conflict of interest?

Article XVI, Section 4 of the model federal credit union bylaws prohibits a director from participating in a decision that affects his or her interests. Directors are required to recuse themselves from all phases of the decision, including discussions, deliberations and voting. This requirement is rather clear when the board is selecting a new accounting firm and a director owns a local accounting firm being considered for the contract. The director has a clear interest in the company and would profit from his company being selected. As a result, the director would not be permitted to be involved in the selection process.

Where the conflicts of interest rule gets murky is when the director’s interest is not so direct. In a 2010 legal opinion letter, NCUA provided a multi-part test for analyzing conflicts of interest issues when the director has an interest in an organization interested in working with the credit union. For ease of reference, here a chart demonstrating how the test works:


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