Conflict of interest occurs when an individual may have or may be seen to have reasons to prioritise their own personal gain over the company’s interest. The individual cannot be trusted as their focus is on their wealth, status and networks over the business they work for. In doing so, they ignore the responsibilities they have as an employee and exploit their position for their benefit.
Anyone in an organisation can have a conflict of interest regardless of their position. However, the problem is more serious when senior management chooses their own personal interest over those of the company. Depending on the situation and its severity there are different actions that can address this issue.
Examples of conflict of interest
There are many examples but the most common ones are:
An employee might use the knowledge they acquired from work to start their own business. They might become a competitor. On top of that, the employee might choose to use the company’s resources to help their own business grow. They might be using program subscriptions for their own business. They could potentially redirect customers to their startup instead of the one they work for. It shows that the staff member is not loyal to the company.
Nepotism is the act of hiring an individual because of personal relations rather than their skills. An example of that is an unqualified employee being hired by having their uncle who already works in that company. Influencing the recruitment process is unfair and could damage the business in the long term due to the person not having the adequate qualifications required. Relationships between staff members, romantic or otherwise, can cause more issues as bias can affect decision making. Nepotism does not occur if the selection process is based on an individual having the right skills and experience.
Financial conflict of interest means that the employee’s finances are affected by decisions they need to make in relation to the business. It can include bribery and fraud. For example, if the employee is the co-owner for another company the business is dealing with. It could also include an employee getting paid to disclose information about the company they are working for to competitors. This is also a breach of confidentiality.
Difference between actual, potential and perceived conflict of interest
An actual conflict of interest describes a real personal interest that might influence a person’s decisions as an employee. There is a direct conflict between the commitment to themselves and the commitment to the company. They might not be aware that they are not being objective and are neglecting their duties to the organisation.
A potential conflict of interest occurs when the personal interests of an employee might affect their actions in the future. An example of this could be if two employees within the business start a romantic relationship and one of the parties is a supervisor.
Perceived conflict of interest is a situation where there could be no actual or potential conflict of interest. Stakeholders or the public might make a reasonable observation that there could be personal interests influencing decisions when in fact it is not clear that this is the case. The public might think that the employee is making decisions based on a current or future personal gain.
How to prevent conflicts of interest
Preventing conflicts of interest is advantageous for a company as it reduces the likelihood of unpredictable issues materialising. It also ensures that employees are always working towards the company’s goals instead of other goals. Some steps employers can take are:
-Requiring employees to disclose relevant information
Requiring employees to disclose relevant information
One of the strategies management can take to prevent conflict of interest is requiring employees to provide a statement where they disclose any information that could affect their responsibility as a staff member. Employers can include this condition in the contract to increase the chances of admission. As an example, most people do not read the terms and conditions of competitions or giveaways. So in order to avoid conflict of interest in competitions, businesses stipulate in the terms and conditions that they do not allow employees or their relatives to join. Employees can disclose this information online, through a management tool, or by submitting a written form.
The policy can outline the degree to which an employee can act depending on their position. It can outline the actions they can take for the company and the limitations. The policy can also inform employees on the types of conflicts and how to identify them and manage them. This can be beneficial for employees who are unaware that their actions or relations might constitute a potential conflict of interest. It can also discourage people from acting on their personal interests as they are aware of the consequences. A policy sets expectations that all employees have to follow. The business should also develop a procedure that highlights how the conflicts of interest and relevant parties will be managed.
All employees should be trained to recognise what conflicts of interest are and how it can affect the company. They should be given examples that help them determine if they are participating in activities against the company’s interests. Staff should be given guidance on how to avoid these situations, not hiring family members is an example. The management should clearly outline what someone should do if they find themselves in that position.
Employees that might observe wrongful actions might feel unjustified in reporting it to the management. They might think that it is not their problem or that reporting it might cause issues for them. For this reason, the management needs to encourage employees to come forward by creating a safe environment. Investigation tools might also help in detecting and reporting conflicts of interest based on business activities such as the lack of provision of disclosure statements.
Conflicts of interest can have negative consequences for all parties involved. If an employee redirects customers to their business it harms the company as it will most likely result in revenue losses for the organisation and loss of clientele. If the conflict is financial in nature then it can be detrimental as it can hurt the reputation of the company and its financial resources.
The employees involved might lose their position, be terminated or even be found of breaking the law. They might struggle to find work in the same industry and they might need to pay fines or provide compensation for the damage they caused. Many times the consequences vary depending on the position of the individual in the company and whether their actions were intentional or unintentional. It was recently found that Andrew Grieger from Southern Mallee breached many conflict of interest rules.
Conflict of interest might seem beneficial in the short term for the employee but it can be harmful in the long term. There are many instances where conflict of interest can arise and the company needs to be prepared to deal with the parties involved. A comprehensive policy that covers all areas in detail should be in place to assist in protecting the organisation. Training and encouragement of reporting are also helpful in avoiding the potential consequences.
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