Conflict of Interest in Business: What You Should Know
Conflict of interest in business is an all too common experience in the corporate world, and an issue that owners and managers must be prepared to deal with.3 min read
2. Categories of Conflict of Interest
Conflict of interest in business is an all too common experience in the corporate world, and an issue that owners and managers must be prepared to deal with and act in the best interest of the company.
The broadest definition of a conflict of interest in the business world is when an employee puts their own interests before those of the organization, and by doing so jeopardizes the operation, profits or even trade secrets of the organization. It creates potential problems of trust between the individual and the business, especially if the individual exposes the business to potential legal action or creates a toxic atmosphere in the workplace that can severely cripple employee morale. Examples include:
- An employee has loyalties that are at odds with the operation or mission of the business, such as working for a competitor on a part-time or freelance basis.
- A person cannot be trusted to make unbiased business decisions due to personal relationships, such as a manager who was dating a co-worker and must weigh his or her advancement against the performance of an equally qualified employee.
- An employee opts for personal gain over the performance of the business, such as when an employee receives gifts in exchange for selecting one bidder over another.
The most common solution when a conflict of interest is detected is to have that employee removed from any instance where the conflict could affect decision-making or, in some cases, fire the employee. In severe cases, it might be wise for management to consult an attorney experienced in business law to make sure that employee rights are not violated and the company opens itself up to legal action.
The Effects of Conflict in the Workplace
It is generally in the interest of employees to avoid a conflict of interest because of the damage it can do to the employee’s reputation, harm relations with coworkers, and the potential of loss of employment.
Employers should create employee handbooks that clearly spell out a code of conduct and provide the penalties for acting in any conflicting manner. A revealed conflict of interest can erode the trust the company may have in an employee’s ability to carry out the duties of their role with the company. It could also cast suspicions on an employee’s relationships with clients or other outside parties. There might also be a reluctance to share vital information with the employee.
However, conflicts of interest can be as varied as the occasions where they can occur and may not necessarily involve a criminal act.
Categories of Conflict of Interest
There are several categories the exist under the broader definition of conflict of interest:
- Family conflict of interest: This is common when family members receive special treatment based solely on their relationship to others in a business. A common term for this practice is nepotism. An example might be the son of the owner receiving special treatment when it comes to being hired over a more qualified candidate, advancement in the company over a more deserving employee or raise in pay not based in any way on performance.
- Romantic conflict of interest: This is actually a conflict that can be manifested in two ways. A person of authority can reward a romantic interest by providing special treatment or, in the case of a romance gone bad, punish the former romantic interest by creating a toxic work environment or passing the person over when opportunities for career advancement arise.
- Financial conflict of interest: A financial conflict arises when an employee (or even a director) benefits from payments of money, receives gifts with the implied intent of influencing an employee’s decision or action or even providing a service at a favorable discount based on the employee’s influence in the company.
- Confidential conflict of interest: Trade secrets are usually a valuable commodity that gives a business an edge over competition. By sharing this confidential information with another company, an employee can cause irreparable harm to an organization and strike a severe blow at the very heart of the company’s existence.
Every business, no matter the industry it operates in, the goods they produce or the services they provide is susceptible to a conflict of interest creating problems. Unfortunately, it is a side of human nature that can occur with even the most trusted and reliable employee. The best a business can do is to establish an environment where conflicts of interest will not be tolerated.
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