Why Do Conflicts of Interest Matter?

Why Do Conflicts Of Interest Matter?

“My business judgement would not be affected by my friendships.” “I would never show favoritism toward a vendor based on the entertainment.” “What do my personal investments have to do with my job? These are separate matters.”

These are quotes that are often heard when the topic of Conflicts of Interest is raised. What is a conflict of interest? A conflict of interest occurs when outside influences affect our ability to make impartial business decisions in the best interest of our company. Most of us have no problem seeing the negative impact of a decision such as accepting a bribe in return for awarding business. That kind of decision is blatantly dishonest and possibly illegal. But what about accepting a dinner in exchange for awarding business? Or hiring a friend or relative for a job? In order to make good decisions in all situations, we need to understand not only what situations to avoid, but why we should avoid them.

Using Your Influence for Personal Gain

Suppose you’re in a position to select a consultant for some important work. Your good friend Bob has experience in the field and you know he would do a good job at a fair price. Does it matter if you select Bob for the job? Hiring decisions should be based on only on the qualifications of the applicants. Even if Bob is well qualified and the best candidate, the fact that Bob is your friend could create the perception of a conflict. If it appears to other candidates, your fellow employees, customers, or our vendors that Bob was hired because of your personal relationship, the integrity of our company’s decisions are compromised. Furthermore, once Bob is hired, are you sure you can supervise his work without letting your friendship influence your evaluation? Even if you think you can do that, it might still appear to others that you can’t separate Bob, your friend, from Bob, your consultant-- and that can lead to misunderstandings, disagreements, or even litigation.

Would it ever be OK to recommend Bob for a job at our company? Yes, as long as you are not involved in the hiring decision and would not be involved in supervising Bob while on the job. To avoid misunderstandings, you still need to make it clear from the start that Bob is a good friend.

Outside Financial Interests

How would this situation change if you had a financial interest in Bob’s consulting company? In this case, even if you disclosed your financial relationship as well as your friendship with Bob, the situation not only appears that you are favoring a friend, but Bob’s selection would also benefit you financially. Our company should select a more neutral candidate.

Second Job or Businesses

Your co-worker Mary would like to set up a small business. Mary wants to offer services that our company doesn’t offer, so she won’t be competing directly. But her first clients will be contacts made through our company who have expressed an interest in the services she plans to provide. Why should Mary re-think her plan?

The most obvious reason is that she is using information acquired at our company to further her own interests. Even though our company does not currently provide the services she plans to offer, by offering them herself she is preventing the possibility that our company might move in to this part of the business. Although she is not competing directly, she may be diverting possible business and affecting future growth. Mary should also realize that the contacts she has made through our company see her as a representative of our company, regardless of the fact that her business will be separate. Finally, remember that any second job or business has the potential to take so much time and energy that it may affect Mary’s commitment to our company. For all of these reasons, Mary’s new business is a conflict.

Accepting Gifts and Courtesies

While attending a trade conference, a vendor who is bidding on business with our company treats Tom, the manager responsible for awarding the business, to a lavish dinner and provides tickets to a show. Why shouldn’t Tom accept this business courtesy?

It’s true that business meals are often exchanged in the normal course of business. But when a meal is “lavish” a flag is raised. Most people would equate that with trying to impress or influence Tom, especially when the vendor is involved in a bidding process. Remember that the appearance or impression that others would have overrides the actual intention of the parties involved. Our negotiations with the bidding vendors must be considered fair and impartial, and a situation like this opens our company to negative opinions or even legal issues.

Before accepting a business courtesy from an associate, consider the following:

 What is your position in our company? The situation changes if you are in a position to influence business with the giver of the courtesy.

 What is the associate’s relationship with our company at this time? For example, the situation may change if the associate is a regular vendor as opposed to a vendor who is bidding on a competitive job.

 How would your acceptance of this courtesy look to someone else? Remember, appearances count! If an action or decision appears to influence fair judgement or treatment, that perception overrides the intention of the action.

Always ask yourself how the decision will appear to others before you take action. In Tom’s case, for example, if the vendor treated Tom to a reasonably priced dinner on Monday night, and treated another customer to a similar meal on Tuesday, the situation would appear more acceptable to an outside observer.

If you have any doubts about a particular situation, contact your manager, Legal Department, or the Ethics Office for advice before you make a decision. Why Do Conflicts Of Interest Matter?

Situations & Solutions

Do I need to disclose any financial interest in an outside company?

If you own a small amount of stock in a competitor’s company, for example through a mutual or stock fund, you need not disclose this information. However if you or a member of your immediate family are a significant shareholder, you should disclose this information to your manager. By doing this you can eliminate any perception of a conflict of interest before such a situation presents itself in the future.

How do I know when a business courtesy has turned into a conflict of interest?

Extravagant or lavish gifts, meals, or accommodations are red flags that signal a potential conflict to others. The company has clear guidelines for accepting business courtesies. If you operate within these guidelines, you’re likely to stay out of trouble.

A vendor is looking to hire a management trainee. My son has the right qualifications. How far can I go in recommending my son for the job?

You can introduce your son to your business associate and let them take it from there. This could become a conflict of interest if you make any statements to the vendor that implies future business or preferential treatment if your son is hired.

This information was compiled by and permission for its use was secured from KAPLAN EDUNEERING.