How Employers Can Identify and Resolve Conflicts of Interest

Conflicts of interest are a concern in any professional setting. These conflicts arise when an individual’s interests clash with their professional duties, potentially compromising the integrity of their business decisions or actions. Unchecked conflicts of interest can lead to significant legal and ethical challenges for both employees and employers.

Identifying Conflicts of Interest
Identifying a conflict of interest is a challenging first step. Conflicts are not always clear-cut and can manifest in various forms, including the following:

• Financial Conflicts: These occur when an employee stands to gain financially from a decision they make in their professional capacity. For example, an employee who awards a lucrative contract to a company they own shares in without disclosing this relationship is in a clear conflict of interest.
• Personal Relationships: These conflicts arise when personal relationships interfere with professional judgment. Hiring or promoting a family member or close friend without transparent processes can lead to claims of nepotism and erode trust within an organization.
• Outside Employment: Employees who work for competitors or have side businesses that compete with their employer’s interests are in a potential conflict of interest. This type of conflict can be tricky to identify, as the employee might not recognize the conflict themselves. However, the harm to the employer’s business interests can be significant if confidential information is misused or if the employee’s loyalties are divided.
• Gifts and Favors: Accepting gifts or favors from clients, vendors, or partners can create a sense of obligation that influences professional decisions. Even if the gift is small or given innocently, the perception of bias can damage trust and transparency in business dealings.

Resolving Conflicts of Interest
Once a potential conflict of interest is identified, addressing it promptly and effectively is crucial. There may be separate considerations depending on whether your organization is public, private, etc. Here are steps that organizations and employees can take to resolve conflicts:

• Develop Clear Policies: Employers should establish comprehensive conflict of interest policies that define what constitutes a conflict, outline procedures for disclosure, and provide guidelines for managing or mitigating conflicts. These policies should be regularly reviewed and updated to reflect current laws and industry standards.
• Encourage Transparency: A culture of transparency can significantly reduce the risk of conflicts of interest. Employees should be encouraged to disclose any personal interests that might conflict with their professional duties. This includes financial interests, personal relationships, or outside employment that could influence their work.
• Implement Disclosure Processes: Organizations should implement formal processes for employees to disclose potential conflicts of interest. This could involve a confidential reporting system or regular declarations where employees disclose any conflicts.
• Conduct Regular Training: Education is key to preventing conflicts of interest. Regular training sessions can help employees understand what constitutes a conflict, how to recognize it, and the importance of transparency and disclosure. Training should also emphasize the potential legal and reputational risks that come with failing to manage conflicts effectively.
• Establish Review Committees: For complex situations, a review committee comprising members from various departments should be formed. This can include legal, HR, and other relevant personnel and can be instrumental in evaluating conflicts of interest and determining the best course of action. This committee can provide an impartial assessment and recommend steps to mitigate risks.
• Take Corrective Action: If a conflict of interest is found to have influenced an employee’s decisions or actions, it is crucial to take appropriate corrective measures. This could range from reassignment of duties to more severe consequences such as termination, depending on the severity of the conflict and its impact on the organization.

Conflicts of interest are an inevitable part of professional life, but they do not have to result in ethical breaches or legal battles. When an organization proactively identifies potential conflicts, fosters a culture of transparency, and implements robust policies and procedures, organizations can effectively manage conflicts of interest. This not only protects the company’s interests but also upholds its reputation and fosters trust among employees, clients, and stakeholders.

It is also important to note that staying abreast of legal developments is critical. New regulations or court decisions can alter what is considered a conflict of interest.

If you suspect there is a conflict of interest at your organization, Employers Council can help you navigate the complexities of disclosure, assess the potential for liability, and ensure that any actions taken are in compliance with employment laws and regulations. And Employers Council members have access to sample employee handbook language to help them develop conflict of interest policies. Click here to learn how to become a member.