That may depend on the relationship between the nonprofits.  It is probably not illegal under state law for the director to vote on the grant, so the answer will most likely depend on the granting organization’s conflict of interest policy.  Our standard conflict policy would require a director to abstain from voting (and to leave the room during discussion if asked) on a transaction with another organization of which the director was also a director.  (See Ready Reference Page: “Conflict of Interest Policies Help Avoid Problems”)   Several community foundations with which we work utilize this type of policy. We believe it is helpful in avoiding the appearance of partiality.

But we have also worked with foundations that are part of a system of healthcare or social service agencies that specifically provide that it is not a prohibited conflict to have a relationship with another affiliated organization within the system.  That seems to work well on the theory that the overlapping directors are all working for the same ends within the system.

The Seventh Circuit Court of Appeals has specifically ruled that it is not an impermissable conflict of interest  for a director to vote in favor of a grant to an organization of which she is also a member of its board, see Nonprofit Issues 2017.

As usual in the nonprofit world, there is no one size fits all.