Conflict of Interests: 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.

A supervisor in an organization has a close family relationship with an employee he is supervising.
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.
A person is holding a position of authority in one organization which causes conflicts with his or her interests with another organization.
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.
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.
A purchasing manager’s decisions are influenced by the gifts and trips given by vendors.
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.

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Various types of activities that cause a possible 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.

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.
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.
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.
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.

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.