The Importance

of Evaluating Conflicts of Interest

The Importance of Evaluating Conflicts of InterestRegularly evaluating the conflicts of interest potentially affecting your company may not seem important to your business operations.  However, because employees, leaders and board members are constantly rotating through and making changes in their personal lives, it is key for a company to regularly review the conflicts of interest of individuals tied to the organization to ensure the conflicts don’t create problems for the company.

What are Conflicts of Interest? 

A conflict of interest is a situation where a person (or company, organization, group) is involved in multiple interests and one of those interests could impact the decision-making process of the person.  A conflict of interest may exist and no wrong-doing related to the conflict has happened, but there is a perceived threat because of the existence of the conflict. The conflict arises from the perception, not an actual action.  We think of most conflicts being financial but they can also be personal or professional in nature without a financial tie.

The primary interest within the conflict is considered the principal goal of the company while the secondary interest is the personal goal of the person or group within the conflict.  A typical employee conflict of interest is a situation that causes the employee to struggle between what is best for the company and fellow employees versus his or her own personal interest and opportunity. 

Preventing Conflicts of Interest

The first step to preventing conflicts is by educating and communicating with employees, leaders and board members.  Educate everyone on what a conflict of interest is and why disclosure is important for the company.  Communicate on an individual level so that everyone is personally aware of how the policy applies to them.

Establish a policy which identifies what situations constitute conflicts and task an employee or a committee of employees with the responsibility of regularly reviewing the policy, educating others and monitoring potential conflicts identified within the organization.  This policy should define conflict of interest and provide a list of various situations that would create a conflict.  Ways to prevent or eliminate the conflict should be addressed in the policy.  Additionally, employees should provide a list of their own potential conflicts as part of the hiring process and this list should be reviewed by the employee and employer regularly.  Encouraging employees to report any potential conflicts that they are aware of within the company is key to tracking conflicts.  Often employees are not comfortable disclosing information because they fear possible repercussions; an anonymous way to submit concerns should be documented as part of the policy.  The procedures for reviewing and examining potential conflicts needs to be documented in detail so that everyone is aware of the standard procedures in place.  All possible actions resulting from the examination should be mapped out in the policy as well. 

Leaders within the company should regularly report potential conflicts to the board of directors for review.  Senior leaders often serve as the face of the organization and any conflicts not disclosed and mitigated may be quickly skew the public perception of the company.  Board conflicts should be disclosed by following the same process used by employees and senior leadership but their conflicts may require review by the company’s legal group.

Regular evaluation of the company’s process for handling conflicts of interest can minimize potential future issues, problems and financial losses.