Just check the latest news feed, and you’ll find a number of corporate and governmental scandals focused on businesses, employees, and public officials that failed to properly disclose conflicts of interest.
Consider, for example, research released earlier this week by the University of Auckland that focused on the use of the term “unpaid consultant” to describe the authors of articles recently published in leading medical journals that advocated particular pharmaceuticals, medical devices, and other biotech offerings. Of the reviewed pieces, 92.6 percent of these authors were in fact “associated with for-profit companies and other vested interests,” meaning that the unpaid consultant descriptor was more likely to “conceal rather than illuminate conflicts of interest.”
And the frequency of these stories is becoming disturbingly more frequent. As part of a 2014 study, CEB Global found that among survey respondents, 27 percent more workers observed a conflict of interest while at work than in a comparable study from 2008. Even more troubling, only 34 percent of these witnesses actually reported their observations.
What Does a Conflict of Interest Look Like?
In a 2012 speech, Carlo di Florio (former Director for the Office of Compliance Inspections and Examinations of the U.S. Securities and Exchange Commission) defined a conflict of interest as: “a scenario where a person or firm has an incentive to serve one interest at the expense of another interest or obligation. This might mean serving the interest of the firm over that of a client, or serving the interest of one client over other clients, or an employee or group of employees serving their own interests over those of the firm or its clients.”
In many cases, these potential conflicts may prove to be innocuous, posing little threat to your business. But at other times, these concerns can mire your organization in ethical quicksand, inviting scandal, lawsuit, or federal investigation. Routinely the conflicts of interest that your employees will face will manifest in one of a handful of common patterns:
In a pleasant office environment, it’s not uncommon for friendships to form and romance to bloom. However, when these relationships begin to compete with sound business practices, you could face a problem.
- Managers who oversee the work of close friends or family
- Vendors that employ a relative of one of your staff
Rewarding hard work and business results is a key to attracting and retaining top talent. But a poorly structured payment scheme that prioritizes short-term financial gains over long-term stability creates the perfect opportunity for fraud.
- Compensation plans that lack managerial oversight
- Salary increases tied to unachievable productivity goals
According to research conducted by Edelman Berland, more than 53 million Americans — roughly one-third of the current workforce — engage in freelance work. So there’s a good chance that a number of your staff, even those in full-time, salaried positions, are receiving paychecks from other businesses.
- Employees freelancing for one of your competitors
- Workers using corporate resources or intellectual property for personal profit
Gifts and entertainment
Exchanging gifts in a corporate setting can be ethically challenging in the best of situations, so your business should have in place clear, detailed guidelines overseeing any potential exchange.
- Items given shortly before or after a business transaction
- Presents given to a government official
Transparency is one of the most important tools your business can use to effectively manage conflicts of interest. After all, you can’t mitigate these risks if you don’t know about them. Require your staff to formally document any potential conflicts of interest that they may face, and make sure that you have in place an oversight mechanism that can actively track and evaluate the potential risk of any of these relationships or areas of concern.
Employ frequent audits to confirm that the information you have on file is accurate and that any mitigating steps your business may have taken are being followed consistently. Similarly, since most conflicts of interest revolve around money, use financial analytics tools whenever possible to identify spending irregularities.
A well-educated staff can also prove useful in the fight against corruption. Offer your workers regular ethics and compliance training to make them aware of their personal responsibilities and help them more easily recognize potential areas of concern.