Conflict of Interest: Meaning, Causes and examples

A conflict of interest is a condition in which a person gas competing for loyalties or interests. It includes an individual who has two relationships which are against each other when it comes to the loyalty of the person.

For example, a person can be loyal to a family business as well as being faithful to his employer. These businesses expect a person to pursue his or her best interest first.

Hence, the situation of conflict rises. A conflict of interest can occur in various situations. Let us understand the conflict of interest with the help of a few examples.

1. A supervisor in an organization has a close family relationship with an employee he is supervising.
2. An employee participating in any promotion, recruitment, evaluation, reclassification, or grievance process prospective or present employees with whom they had or have a close financial or personal relationship or the spouse of an employee is involved in the official work.
3. A person is holding a position of authority in one organization which causes conflicts with his or her interests with another organization.
4. A purchasing manager of a company hires his relative, such as brother in law to provide retailing services for the lunch area of the company.
5. An employee is working part-time for a company which is in direct competition with the company where the employee has a full-time job.
6. A purchasing manager’s decisions are influenced by the gifts and trips given by vendors.
7. A trainer who is hired by a company to provide training related to the software made used by employees of the company and if the trainer starts giving online classes to use software would be a conflict of interest.

Activities that cause a likely conflict of interest

#1 Self-Dealing:

Self-dealing is a situation where a person has a position of responsibility in an organization has conflicting interest with someone outside the organization and take action in his or her interest rather than in favor of the organization.

This happens mostly in fiduciary situations, where a person is in a position of interest and infringes that trust. For example, a real estate agent taking advantages from the sale of a property.

#2 Nepotism:

The meaning of nepotism is giving favors to close family and relatives. Most of the times by offering them a job position that they don’t deserve. This term is quite popular in Bollywood. This term is derived from the word “Nephew.” This term is popular since ancient times.

Nepotism is considered a conflict of interest at work as people might hire employees (because of close family or friend relationship) who does not deserve the position.

#3 Conflicts of interest by Boards of directors:

Conflicts of interest policy statements are written and signed by the board of directors. A board member can be sued or kicked off if a member is found to have conflicts of interest.

For example, if a member of the board establishes a sexual relationship with an employee of the organization or if he is taking the business to other organization intentionally or unintentionally.

One common type of conflict takes place when a board member gets information about a potential deal that might affect the price of stocks of the company.

A board member might take profit from this information. A board member having this knowledge is called “insider trading.”

It is not legal and known as a conflict of interest. Same issues take place in the board members of non-profit organizations. The IRS needs non-profits to reveal a possible conflict of interest.

Conflicts of interest in the workplace

Let us learn about the conflicts of interest in the workplace.

1. A major interest of conflict takes place in an organization when a manager and employees have who are dating, married, or have a sexual relationship. It is called a conflict because a manager plays an important role to give a salary hike and promotion to employees. In addition to this, when two people are in a close relationship, they might share information with each other, which can cause a breach of confidentiality restriction.
2. When an employee is employed in one company and runs a side business in the competition with his employer, in this case, the employee could be asked to resign the post or could be fired.
3. A former customer uses the list of company’s customers for his own business or for his new employer’s benefit and gives direct competition. Employees are often asked to make non-compete agreements for this reason.
4. An employee who is responsible for the bidding process and give bid to the employee having a friendship or relationship with.

Most organizations prepare policies and procedures don’t help in reducing the number of conflicts of interest even before they take place. For example, businesses don’t allow managers to hire relatives.

Conflicts of interest in the profession

#1 Attorneys:

Attorneys are bound to abide by the Code of Professional Responsibility set by American Bar Association. One common example is when an attorney becomes a representative for both the parties involved in a court case (such as divorce).

#2 Physician:

Conflicts of interest are quite similar for a physician as of attorney. For example, a physician cannot handle financial matters for patients and tries to avoid indecorums with staff and patients.

#3 Journalists and reporters:

If Journalists and reporters become too friendly with the subject, change story under the influence of relationship with the subject, publicly endorsing a political cause or client, then he or she can get into ethical conflict.

In the professions mentioned above, it is wise for people to avoid the presence of a conflict of interest.  Victims of conflict of interest (such as outsiders or employees) can bring a lawsuit against the company.

Try to work and design policies and procedures for all type of conflicts of interest (from board level to workers level) that might occur in the future and implement these policies in all conditions.

#4 Conflicts of interest in the public sector:

For example, a judge must avoid Conflicts of interest. For example, if a judge is involved in any kind of financial relationship with one of the parties of a case handled by the judge, he or she must disclose that relationship as soon as possible and take himself off the case to avoid one of the common conflicts of interest in the public sector.

Any public servant such as state, federal, or local government may have a conflict of interest on the basis of the knowledge they have about the case.

For example, if a state legislature passes a bill for the advantage of state legislators, it can cause a conflict of interest. Another example would be if a legislator purchase stocks of a company based on the knowledge that he or she has regarding the price of stocks of the company.

It would be considered a conflict of interest as well as insider trading.

5 Steps to overcome the conflict of interest

#1 Design a process in your organization to deal with different types of conflicts of interests

The easiest and best way to deal with a conflict of interest is by having an already established process to manage it. If you know how to deal with specific conflicts of interests, you can avoid their repercussions.

To do this, you should imagine all possible conflicts of interest that might happen in the organization and decide beforehand how to handle these conflicts and who should be involved to deal with these conflicts.

#2 Predict the conflict of interest members can have before involving them in major events

Though it is difficult to implement, certainly it is not impossible. If implemented strategically, it will save you a lot of efforts later. Let us understand this with the help of an example of school boards. School boards are usually made from parents of students and current students of the school.

Inboards like this, it can be difficult to take decisions related to students in years to come. It can be difficult for board members to decide whether to raise the fees so that future students can have a playground in school.

Most of the members of the school board will be against this idea as they are the ones who are paying the school fees.

Increase in the school fees will also increase the burden on their pockets. Such conflicts help board members to acknowledge that their personal preferences influence their decisions, and they are not best for the school.

Having the established process and their relevant solutions might help the board members to deal with the conflicts by following the necessary steps.

#3 Educate your employees about the different types of conflict of interest and their repercussions:

You cannot blame an employee if you don’t teach them what is right or wrong to do. At this point, training can be helpful to provide the required education. Training should be provided to all board members and employees of the organization.

In the training session, people can become familiar types of conflicts and their terms, and also learn that how to avoid conflicts from taking place in the organization or what actions to take when a conflict takes place in the organization.

#4 Make a policy to state all possible conflicts of interest that might happen:

In case you are already aware of the conflict situation, then it will be good for you if you declare it beforehand. For example, if you are a hiring manager and you come across a potential candidate with whom you have a personal relationship than it will be in favor of you to declare your interest in open and make your seniors aware of it.

So that later, you can save yourself from any kind of conflicts.

#5 Ask for the opinion of other employees or members

One of the best code of conduct is when a member not only think about himself but also think about others.

Employees of an organization should be full of people who think that they can do, and they think in favor of others and maintain “I can help kind of attitudes” and in case people forget their duties and responsibilities and take actions which solely interests them than the help of board members of legal court can be taken to resolve the issues.

In such scenarios, one employee can help others by making them aware of what problems their involvement can cause.

Models on Conflict of Interest

Other than that two models can be used to deal with conflict of interest. The first model is based on presumptions against any relationship that can cause a conflict.

This model is called “Prohibition model,” although such prohibition can be overcome with the practice of sufficient social benefits.

The other model is based on the presumption for conflict relationships and provision for their review and disclosure. The name of this model is “disclosure and peer review.” Let us learn about them too one by one.

#1 Prohibition Model:

The prohibition model is designed to deject any type of arrangement, especially financial, which can create a conflict of interest unless the arrangements are made for social benefit. This approach can be implemented if the people who follow this approach establish a context within which certain conflicts of interest are tolerable.

Within the context, the first and foremost, consideration is whether the activities causing conflicts of interest has any lowering social value.

If there is no such case then a process should be established to barring the activity and conflict of interest and if the activity is causing harm to social value and if it is clearly overweighing the risk of incomplete or biased conduct or reporting of research then it clearly requires a process to examine the activity or arrangement further and suggest suitable actions to stop the activity.

#2 Disclosure and peer review model:

According to the disclosure and peer review model, conflicts of interest cannot be avoided, and conflict of interest related to financial matters are easily visible and are least dangerous. Having awareness about the potential sources of bias promotes various point of views and provide opportunities to balance.

In addition to this, a strong peer- review process can help you to secondary data analysis. According to some observers, balancing and disclosing conflicts to some extent is more realistic and appropriate than trying to eliminate them.

How to avoid conflict of interest?

Conflicts of interest once can harm the finance and image of an organization. Therefore, rather than tackling it once something has happened, conflict of interest should be avoided.

Businesses are required to build policies through which conflict of interest between employees, board members, and contractors can be avoided.

This policy consists of all the information such as unethical situations and people responsible for taking decision when such situations occur. In this section, you will learn about a few tips to avoid conflict of interest from taking place.

1. Make a committee to draft all possible conflicts of interest.
2. List all members of the organization to whom the policy will be applicable. The policy that you think can apply to more people, which is difficult to mention on the policy should be mentioned as “everyone in the organization.”
3. Explain in detail all possible conflict of interest situations and also mention to whom it is applicable and what actions should be taken when any rule is violated. Don’t forget to include a statement that the organization plans to abide by the spirit of the policy and letter to avoid any effort to exempt a conflict by the stern structure of policy language.
4. Include at least two chains for reporting so that employees can feel free to report.
5. Mention step by step procedure through which conflict will be tackled.
6. Mention all the action in detail taken by the organization as the repercussions of conflicts occurred.
7. Maintain policy actively by making changes to it as per the change in the requirements of the organization.
8. Apply policy in all situations and don’t make any exceptions so that your employees and applicants know that the organization is vigilant.

Is Conflict of interest crime?

Conflict of interests have major consequences like all other unethical and illegal activities.

#1 Private businesses:

Most of the times, these issues are dealt with by a civil lawsuit in a court.

For example, if there are enough proofs that a member of a board of a company has taken advantage of his position or the member has violated his or her duty of loyalty than the matter can be taken to court.

#2 Public Sector:

There are both state and federal laws to criminalize the conflicts of interest in government organizations or entities (public sector). In a few situations, the consequence of the conflict of interest can be a prosecution.

For example, public officers are not allowed to indulge in any kind of activity that might result in personal gain. If an officer is found to be taking advantage of his or her position, he or she will be considered causing a conflict of interest.