WHY IT IS IMPORTANT TO IDENTIFY AND EFFECTIVELY MANAGE CONFLICTS OF INTEREST

Conflicts of interest can be seen as obvious, 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.

Often it is the use or disclosure of confidential information that gives rise to a conflict of interest.

WHAT IS A CONFLICT OF INTEREST?

A conflict of interest is, “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 stockholding.
• 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.

‘… 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.’

HOW TO RECOGNIZE AND SOLVE 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 a 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 judgement 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.

‘… check whether your organization has policies in place for recognizing and dealing with conflicts of interest, and follow these procedures carefully.’

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.

‘Keep in mind that it takes skill, awareness, and good judgment to recognize that you have a 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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* 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.

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Image: “Corrupt Legislation” by Elihu Vedder (1836–1923). Photographed 2007 by Carol Highsmith (1946–), who explicitly placed the photograph in the public domain. [Public domain], via Wikimedia Commons