Why Avoiding Workplace Conflicts of Interest Is Important

Conflicts of interest have been the ugly child of ethics and compliance programs for a while now. For most employees, it’s more of an ethical concern, not a legal one (key personnel like fiduciaries or company officers are different). While not as sexy as insider trading, popular as bribery, or diabolical as fraud, workplace conflicts of interest can erode a company’s compliance program just as easily as more common unethical violations.

What is a Conflict of Interest

Transparency International, a global anti-corruption and anti-bribery organization, defines a conflict of interest as a situation where an individual working for an entity “is confronted with choosing between the duties and demands of their position and their own private interests.” In the workplace, this means an employee being able to choose a course of action that benefits them to the detriment of their employer. Conflicts of interest can happen in almost every workplace. For example, an employee who recommends that his company do business with a business he has an interest in is a common conflict of interest situation. Conflicts of interest are not necessarily unethical, at least until someone acts on them.

Why Avoid Conflicts of Interest

Conflicts of Interest Are Badges of Corruption

Avoiding conflicts of interest is necessary because otherwise they are omens for other corrupt and unethical actions, like fraud or bribery. The FIFA scandal is a great example.

Part of the scandal involved a conflict of interest. In 2011, then-FIFA President Sepp Blatter paid then-Union of European Football Associations chief Michel Platini $2 million of FIFA money as salary for acting as a “presidential advisor” without a contract, which Platini performed over eight years prior. According to the Los Angeles Times, “Platini was paid in February 2011, just before Blatter began campaigning for reelection against Mohamed bin Hammam of Qatar. Platini’s UEFA urged its members weeks before the June 2011 poll to back Blatter, who was elected unopposed when Bin Hammam was implicated in bribery.”

FIFA’s court of ethics decided that Blatter and Platini broke FIFA Code of Ethics rules on conflicts of interest, breach of loyalty and offering or receiving gifts because both parties abused the power of their positions to gain personally. When confronted with the $2 million offer, Platini took it apparently in exchange for garnering member support for Blatter’s run for president.

At the time of this post, Blatter is still under investigation for suspicion of criminal mismanagement and misappropriation of money by Swiss authorities. This exchange may well be reflective of FIFA’s widespread corruption. 

At a minimum, companies should have an anti-bribery and anti-corruption or conflicts of interest policy, and a code of conduct, that handles conflicts of interest. Once established, a company must implement its code of conduct effectively for optimal compliance through communication, training, and leadership. FIFA leadership should have ensured the latter.

Conflicts of Interest Lead to Bias

Conflicts of interest are also costly because they can lead to bias that clouds ethical decision-making. According to Ethical Systems, housed in New York University’s Stern School of Business, “much of the problem with conflicts of interest is not intentional corruption but unintentional bias.” Research shows human reasoning and serving one’s interest to be very closely linked. For example, Ethical Systems continues, “whenever a person can reap rewards for recommending a particular course of action, he or she is more likely to recommend that action, even while honestly (but incorrectly) believing that he or she has acted objectively.” It has little to do with intent.

It’s cognitive. “The brain is not compartmentalized enough for people to be able to separate out their personal interests from their professional duties,” according to an article in Psychology Today that explains why conflicts of interest and bias are a “serious moral problem.” Roughly put, we think we are making rational decisions for the benefit of a client or our employer, but we can be easily “led astray” by personal beliefs, emotions, and feelings in the moment. This is why merely disclosing a conflict of interest, while necessary, is insufficient according to both Ethical Systems and Dr. Paul Thagard. We are lulled into thinking we’re doing the right thing, when we may not be.

What to Do About Conflicts of Interest

Trying to curb conflicts of interest may sound like an impossible task. It isn’t. Sure, mitigating a conflict of interest when it is happening is problematic. Instead, companies should focus on removing conflicts of interests from ever entering the workplace. There’s no conflict to toil with if it never presented itself to begin with.

Removing conflicts of interest cannot always be accomplished by management alone. In addition to developing and implementing a policy that addresses how to identify and avoid conflicts of interest, companies should consider compliance training for all employees. Employees must know how to identify conflicts of interest in their everyday jobs so they can avoid them altogether. My colleague Steve Treagus described training as an antidote to a deficient compliance program: “An otherwise solid compliance program will not be effective if people don’t understand it or know how to apply its principles. Training is how compliance programs are effectively communicated.”

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