What is conflict of interest in the workplace?

A conflict of interest arises when an employee engages in a relationship or activity that breaches their loyalty to your business. In other words, the individual stands to gain something personally from the situation, but your business is potentially at risk.

For example, someone who works for you decides to set up their own business as a side hustle. If their new company is in the same industry, and your resources would benefit the startup, there’s a conflict of interest at play. As the employer, you are interested in keeping the clients you’ve worked hard to find while the new business stands to gain from attracting them.

Companies must ensure internal processes are in place to prevent workplace conflicts of interest, although there are also federal and state laws to mitigate them.

Conflict of interest examples

Employees betraying their employers’ interests can have far-reaching consequences and damage reputation and profitability. Generally speaking, conflicts of interest fall into three main categories: confidentiality, financial and relational.

Confidentiality

Confidentiality conflicts of interest occur when an employee gives trade secrets, company documentation or any other revealing information to a competitor or third party. Let’s look at some confidentiality conflict of interest examples:

• An employee works part-time for a company making a product that competes with the output of their full-time employer
• A director advises and accepts fees from a competitor
• An employee sets up a personal website selling their employers’ software products directly
• A manager makes plans to work with a client personally in the future
• An employee posts confidential company information online
• A manager offers paid services to a customer or supplier during their time off
• An employee shares confidential company data with a competitor

Financial

Potential financial conflicts of interest arise when a worker financially gains from their knowledge, experience or access to your company. Examples include:

• A lawyer represents a client while accepting fees from litigants with an opposing point of view
• A purchasing agent accepts gifts from a vendor and goes on to select their products for purchase by the company without due comparison
• An employee accepts gifts from a training company and exclusively recommends them to customers
• A CFO negotiates a deal on behalf of an employer that they benefit directly from
• A manager makes purchasing decisions that boost a business they have a stake in
• An employee’s family owns all or part of a supplier
• A director makes money on a business opportunity that could have been profitable for the company

Relationships

Personal relationships in the professional sphere can hinder judgment and cause issues. Let’s look at some examples:

• A manager hires an underqualified relative for a role instead of advertising it and conducting interviews
• An employee fails to tell you they’re related to a candidate
• A manager doesn’t investigate a complaint made against their friend
• A director has a relationship with a manager or a manager has a relationship with an employee
• A purchasing agent hires a friend or family member to provide vending services to the canteen
• An HR professional investigates a long-time colleague and friend
• A manager who used to date another manager is promoted to director and becomes the direct supervisor of the person they used to date

Is conflict of interest a crime?

While some conflict of interest examples listed above would be considered unethical, some are actually illegal. Federal and state laws exist to criminalize conflicts of interest in the public sector that involve taxpayers’ money. In some instances, it might even result in prosecution.

For example, the government typically prohibits its employees from participating in official matters in which they have a financial interest. The law may include the worker’s general partner, spouse and children. Sources include:

• Investments and assets
• Private investment funds
• Liabilities
• Corporate employment
• Business or farm ownership
• A law or consulting firm

How to prevent workplace conflicts of interest

As an employer, you can do plenty to mitigate conflicts of interest. The most important preventative elements are standards and policies. By writing an exhaustive employee handbook and code of conduct and ensuring onboarding training for all employees involves them, you can protect yourself against potential conflict of interest.

Enforce standards and policies

Employment guidelines are a business owner’s best defense against issues such as conflict of interest. Use company documents to outline clear definitions, examples and consequences in case of a breach. Make sure every new employee signs an acknowledgment form stating that they’ve seen and understood the employee handbook and code of ethics and their contents.

Establish a culture of disclosure

Making employees aware of what conflicts of interest are is one thing, but you must also encourage them to disclose any concerns. Your workforce must feel confident and comfortable coming forward; otherwise, corruption can quietly take root.

Follow a formal investigatory process

Sometimes, conflicts of interest will arise, even with all the necessary precautions. As such, you should establish a formal procedure to ensure your company impartially and fairly investigates any claims. Formal reporting policies provide open channels of communication for employees at every level.