Your new director will have an obvious conflict of interest in serving on your board and simultaneously serving on the board of a recipient of your organization’s services.  You will probably want the new director to abstain from deciding whether to provide the services, the terms on which the services will be provided, or negotiating on your behalf with the organization as to how, when and how well the services are provided.  But that doesn’t mean you shouldn’t have the new person on your board.

There are a few organizations that do not permit a person to serve on the board if the person has a conflict of interest with any recipient or vendor of goods or services.  In my view, that is too narrow a view and can cost the organization of some really good services from some really good people.  The conflict can be recognized and dealt with by disclosure and recusal pursuant to a good conflict of interest policy.  (See Ready Reference Page:  “Conflict of Interest Policies Help Avoid Problems”)

In your case, although there is a conflict, it is a conflict with another nonprofit so it is highly unlikely that there would be a personal gain for the director.  If the person otherwise adds value to your board, there seems to me no reason to reject the person simply because the person is on the board of another organization that wants to purchase your organization’s services.