Dealing With Conflicts of Interest

Identifying and Avoiding Unethical Behavior

Dealing With Conflicts of Interest - Identifying and Avoiding Unethical Behavior

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Are conflicts of interest affecting your employees' trust in you?

Konrad's boss has asked him to manage the bidding process for an upcoming IT infrastructure upgrade. His partner works for an IT vendor, so he asks her to submit a bid for the contract.

This is a clear example of a conflict of interest. After all, how can Konrad now make an objective recommendation when it comes to choosing the supplier?

Conflicts of interest can be as obvious as this one, but they can also be quite subtle; and if you fail to recognize a conflict of interest, you could easily find yourself in a situation that damages your credibility, integrity, or reputation.

You also need to recognize the close connection between conflicts of interest and breaches of confidentiality. Often it is the use or disclosure of confidential information that gives rise to a conflict of interest.

In this article, we'll look at why it's so important to identify conflicts of interest, and we'll explore what you should do when you find yourself in a situation that involves one.

What Is a Conflict of Interest?

In this 2009 report, editors Bernard Lo and Marilyn Field defined a conflict of interest as, "a set of circumstances that creates a risk that professional judgment or actions regarding a primary interest will be unduly influenced by a secondary interest."

Put simply, conflicts of interest occur when competing loyalties affect your judgment or objectivity, and they are particularly important when you are making decisions on behalf of other people. These are examples of situations where a conflict of interest has occurred:

  • Guy, a medical doctor, receives a research grant from a pharmaceutical company. He then feels obliged to prescribe drugs from that organization, even though there are better alternatives available.
  • Gillian coaches her nephew to help him get a role in the company she works for. She talks positively to the hiring manager about his abilities and character, without disclosing her family relationship.
  • Sita's boss has asked her to select a supplier for their department. She chooses an organization in which she has a stock holding.
  • Juan awards record bonuses to himself and his executive team in the same year that he cancels the company's dividend to shareholders.

In many cases, conflicts of interest aren't illegal, unless you work with, or are involved with, a city, state, or federal government; you work in a regulated profession such as law or accountancy; or you contravene bribery laws.

However, they can cause people to question your honesty, credibility, integrity, and reputation, which is why it's important to know how to recognize and handle these situations effectively.

How to Recognize and Declare a Conflict of Interest

It can sometimes be difficult to identify situations where your professional interests, obligations, or responsibilities might conflict with your personal interests. Whenever you are involved in a business or financial decision – and particularly when you are representing other people's interests – think carefully about the situation.

Step 1: Evaluate the Situation

Consider these questions:

  • Will you, or someone you know, receive any unearned benefits or gain competitive advantage from this situation or relationship?
  • Does your own personal interest in this situation compete or conflict with the interests of any people or organizations you are representing?
  • Could your actions or decisions go against the best interests of your organization or client?
  • Will you be taking advantage of your organization's or a client's proprietary or confidential information for your own benefit?
  • Could a gift or benefit (given or received) affect your judgment in any way?
  • Could this situation or relationship damage the trust that others – for example, your boss, clients, colleagues, or the public – have in you?

It's also important to pay attention to your instincts in situations like these. If you feel uncomfortable in a situation, take time to evaluate why you feel this way. You could also ask a trusted friend, colleague, or ethics advisor for their objective view.

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Step 2: Declare Any Conflict of Interest

If you suspect that a conflict of interest exists, you need to disclose the situation appropriately.

Before you take any further steps, check whether your organization has policies in place for recognizing and dealing with conflicts of interest, and follow these procedures carefully.

Depending on the situation, you may need to declare your interest publicly, or you may need to talk with your boss, client, or customer. Explain the situation honestly, and be clear about how your private interest might muddle your judgment or decisions. Depending on the circumstances, you might need to remove yourself entirely from the situation or from the decision-making process.

In some cases, you might not need to alert others, and it might be fine simply to avoid the situation. Use your best judgment in these cases – often, it's safer to assume that a conflict of interest exists and to declare it openly, rather than keeping it quiet. Being open about the situation will build trust with others, and it'll ensure that no one suspects that you'll try to benefit from the situation.

Step 3: Avoid Potential Conflicts of Interest in the Future

Sometimes, the best way to handle a conflict of interest is to avoid it entirely. Conflicts of interest can appear at almost any time in any role, but they are more common in situations where you are involved in decisions on behalf of someone else (such as taxpayers or shareholders), or when you are selecting suppliers or contractors.

Keep in mind that it takes skill, awareness, and good judgment to recognize that you have a conflict of interest. Pay particular attention in situations that involve a friend, family member, or associate. When you learn to recognize these situations objectively, you can identify competing priorities.

And look after your people as well – train them on how to identify and assess potential conflicts of interest, so that they don't accidentally fall foul of them.

Disclaimer:

This article is for general guidance only. You should consult your company's policies and appropriate managers in relation to any specific circumstances where you feel that there may be an actual or potential conflict of interest.

Key Points

Conflicts of interest arise when competing loyalties or interests affect your judgment or objectivity.

Particularly when you are making a decision on behalf of other people, evaluate your situation carefully. Will you receive any unearned benefits or any other compensation from this relationship, decision, or situation? If others were to know about this, would it damage the trust that they have in you?

If you determine that a conflict of interest does exist, disclose the situation appropriately. In many cases, the best course of action will be to remove yourself from the decision-making process.

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Comments (2)
  • Over a month ago Midgie wrote
    Thanks Coastonian for sharing. There does seem to be a difference in the private versus public sector, yet I wonder whether it should be the same!

    I also wonder what the line is between 'conflict of interest' and 'hospitality' whereby companies take clients out for dinners, games and shows.

    Anyone have a view on this fine line?

    Midgie
  • Over a month ago coastonian wrote
    Interesting!

    As a public servant I am required by law to disclose financial conflicts of interest, or potential conflicts of interest, each year. For example if I own a home near a project site I must disclose it and likely recuse myself from the project. If I accept tickets for a ball game (which I wouldn't do as I would get fired) I would need to disclose the source and the value of the tickets. If I have stock in a local company I need to disclose the value of the stock.

    I remember when I worked in the private sector we had much greater leeway, but even then we had to excercise good judgement.

    This article is an excellent reminder!