Conflict of Interest

Conflicts of interest are some of those issues that people generally know about but tend to fail to notice when they are actually presented with evidence that it is occurring. This is largely due to personal knowledge of the individuals and organizations caught up in a particular conflict, but it can also be caused by attempts by the organization or individual to hide any potential or existing conflict which can be used for gain.

Generally speaking, a conflict of interest is when an individual or organization has a relationship between two or more other individuals or organizations, where the relation to one could conceivably influence the interaction with one or more of the other organizations or individuals. Case in point would be the CEO who owns stock in his own company, trades off the majority of his shares prior to releasing poor economic results for the company. This is also seen in the public sphere where a public servant awards a construction job to her brother in law.

These examples are very obvious and often come under intense scrutiny when they occur, usually by the media for important contracts and major corporations, however they also occur in far smaller groups and circles, which can cost most organizations money and respect in their corporate circles.

Smaller level examples include the most frequent conflict, personal relationships, but also involve finances such as personal loans, memberships in clubs, prior or hidden criminal or ethically dubious acts and social pressures.

In any case, it usually falls to an organization's internal capabilities to keep track of conflicts of interest for its own personnel. Often times, these issues are investigated by HR staff at the time of short listing or hiring, when general checks are conducted internally or with the help of an outsourced HR firm or investigator.

The problem with this method is that things change over time. As people become more settled in a position or they develop professionally, they tend to branch out in terms of stock holdings, memberships and personal ventures. As these develop, the potential for conflicting circumstances to develop increases greatly. The person in the conflicting position usually will not identify the conflict to the organization, either out of ignorance, or more commonly as they recognize the potential benefit to keeping silent. Case in point is the computer software engineer who starts up a small business on the side providing similar services as he performs in his primary employment. Using the skills and resources gained from employment in the business, as well as valuable contacts and commercial opportunities to network, he can gain significant advantage by offering services below the corporate rate, often using resources from the company he works at to enhance his own business and reduce overhead. This scenario is actually one of the most prevalent forms of conflict of interest cases and costs companies major capital as it is often low level but very widespread.

A way for a company to keep on top of this is to run occasional updates to conflict of interest cases. Important times to look out for, particularly for C-suite executives and technical staff (engineers, scientists, etc), are periods of time when new staff are brought on, competitors make major acquisitions, supervisors become aware that staff are starting their own business and if any major bonuses are granted which could offer an employee the opportunity to make cash investments in personal business or stock acquisitions.

Additionally, depending on the type of business, regular checks should be performed on a regular basis (2-5 years) on all C-suite, executive management and major development and technical leaders to ensure that proper disclosures have been made. These checks should be performed out of the Board of Directors offices and can be done by internal staff if the capability exists, however using external organizations ensures the proper skill sets, impartiality in the investigation and allowing for greater flexibility without diverting staff from other tasks.

Blog post is courtesy Elemental Investigations: Private Investigator Edmonton, an Edmonton, Canada based private investigator agency. They can be found online at www.elementalpi.ca