What is conflict of interest?

The conflict of interest meaning refers to a situation where someone has distinct obligations to different people that contradict one another. It often happens when someone’s personal interests conflict with their professional responsibilities and can make them unreliable.

For example, if you make a deal that benefits yourself but hurts your clients or shareholders, that’s a conflict of interest . Conflicts of interest can occur when someone has a private interest in the outcome of a business deal, even if they haven’t acted on it. Managing conflicts of interest is an important part of upholding your ethical standards as a business.

Types of conflict of interest

Conflicts of interest have many forms, from financial to personal. They can occur any time someone in a position of power could be motivated to abuse their position to earn money, make connections, build a reputation or otherwise promote their personal goals. Some common conflict of interest examples include the following.

Nepotism

Giving professional favors to friends and family is a type of favoritism called nepotism. Large corporations typically have ethical concerns about nepotism , especially when managers hiring unqualified family members instead of experienced outside candidates impact shareholders. Not disclosing a familial relationship or being inconsistent with company policies when hiring can also lead to a conflict of interest.

For example, a project manager who hires their brother’s construction company for a government contract without reviewing other offers would be acting on a conflict of interest due to nepotism .

Self-dealing

Fiduciaries who make choices for their clients based on direct personal gain commit a form of fraud called self-dealing. An example of self-dealing is a financial advisor recommending an overpriced financial service to earn more commission when the service would harm their client’s financial health. Using insider information to buy or sell company stocks before key business moves is another example of self-dealing.

Outside employment

Having two jobs can be a conflict of interest if one job interferes with your duties in another. For example, a sales consultant who takes a job with a competing firm would have a conflict of interest that could result in misusing company secrets for personal gain.

Conflicts of interest in business

A business conflict of interest can have legal consequences, especially if the person has contracts with the conflicting parties. Any person or organization who can make choices on someone else’s behalf should avoid conflicts of interest to uphold their ethical credibility and fulfill their legal responsibilities. Some types of conflicts of interest, like insider trading, are serious crimes and may result in jail time or penalties from the IRS.

If you discover a potential conflict of interest in your business, you can take steps to prevent an ethical breach. For example, if a board member has shares in a business that your company is thinking about contracting with, that board member could step down temporarily or not cast a vote on that issue to avoid a conflict of interest.

You may need to takedisciplinary actionagainst an employee or board member in the event of a purposeful conflict of interest. Responding to situations where there could be a conflict of interest before it happens shows credibility and self-accountability, which can build trust with business partners, shareholders and customers.

Related:Employee Warning Notice: A Template for Issuing a Warning

Avoiding conflict of interest

You can take steps to reduce conflicts of interest in the workplace in several areas.

• Company policies: Establish company policies that discourage these situations. This might include a policy on nepotism and requiring hiring managers to disclose relationships with new hires.
• Education: Train employees on conflict of interest and how to identify these situations. Teach them how to handle a situation where they have a conflict of interest. The training should also inform them of possible consequences up to jail time, depending on the type.
• Non-compete agreements: Having your employees sign non-compete agreements can reduce conflicts by preventing your employees or former employees from working for a competitor for a designated period.
• Consequences: Outline your internal consequences if someone is caught using a conflict of interest to their advantage. In severe cases, this could include termination.

FAQs about conflicts of interest

Here are some of the common questions related to conflicts of interest in the workplace:

What causes a conflict of interest?

Any situation where an employee can use their professional resources to benefit themselves has the potential to cause a conflict of interest. Relationships, financial investments and personal career goals can all cause a conflict of interest. Some people purposely seek out situations that result in a conflict of interest for their personal gain. Others stumble into the situation due to their position and personal interests.

What is an ethical conflict of interest?

The phrases “ethical conflict of interest” and “conflict of interest” have the same meaning: any situation where someone’s personal motives could influence the decisions they make on behalf of another person or company.

Who can have a conflict of interest?

Anyone involved in a business can have a conflict of interest, including employees, employers and trustees. People at all levels of the business could use their position for their personal gain when a conflict of interest arises.