Eddy’s HR Mavericks Encyclopedia
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Conflict of Interest
A conflict of interest can do major damage to a company, whether it’s manager favoritism or executives making decisions for themselves. Read on to learn about the types of conflicts of interest that may be affecting your organization and what you can do about it!
What Is a Conflict of Interest?
A conflict of interest is best understood as a preconceived bias. No matter the situation at hand, if you have a bias prior to evaluating both sides for any reason that could compromise your judgment, it could be a conflict of interest.
Common Types of Conflict of Interest
Some types of conflict of interest will sound familiar and some might not. Let’s review the most common types of conflicts of interest to be aware of in the workplace.
Nepotism
Potentially the most common and widely known conflict of interest is nepotism: favoritism based on kinship. Nepotism usually takes place when someone in a position of power in the organization uses that power in favor of family or friends, whether they deserve it or not. Most organizations have a zero tolerance policy for hiring family or close friends for the same organization to avoid nepotism. While not always the only course of action, nepotism is difficult to avoid, so your organization may choose the path of least resistance and adopt a zero nepotism policy at your company too.
Gifts or Bribes
Most are familiar with the term “bribe” but may not realize that gifts are lumped into the same category and can be a conflict of interest. If you’re deciding between two external vendors and one sends you tickets to an NBA finals game, this could be a conflict of interest. While you may be able to keep your decision about the two companies completely bias-free, the “gift” or bribe can influence your opinion one way or the other, thus creating the conflict of interest.
Self-Dealing
Not all are familiar with this specific phrase, but most are familiar with this type of conflict of interest. Self-dealing is when someone in a position of power puts their personal interests before their business, co-workers, vendors or clients. This can be as simple as deciding to stay with a specific insurance as an organization during open enrollment even though it’s more expensive for the company and not the best option because the employee in power prefers that insurance. Self-dealing can go as far as insider trading when the employee in power uses their knowledge about a specific acquisition to increase their stock portfolio before the information is common knowledge. Self-dealing can be a dangerous type of conflict of interest and is more common than you think.
Why Is It Important to Be Aware of Conflicts of Interest?
Nothing can derail your organization faster than conflicts of interest embedded into your workforce. Let’s look at why it’s important to be aware of these below.
- Morale. Whether it’s nepotism or self-dealing, nothing will take down morale faster than employees catching on to favoritism or a leader in power putting themselves before their team. To maintain good morale, it’s important to be aware of any conflicts of interest and root them out.
- Internal corruption. Conflicts of interest within your organization can be a poison working its way through the company, often from the top down. Without awareness and knowledge, it can be hard to stop them from happening and protect your organization from corruption or potentially illegal issues that could harm your entire company.
- Litigation. Morale and internal corruption can be visible to your employees and could negatively affect your company. Disgruntled employees who have been slighted due to the conflicts of interest may choose to take the company down and expose these issues publicly.
How to Manage a Conflict of Interest
The importance of managing conflicts of interest is clear, so let’s look at how this can be done in your organization.
Step 1: Establish a Policy
Conflicts of interest are unavoidable in any organization. Humans are bound to be susceptible to one at some point in their professional careers, so the first order of business is to establish a policy that will protect your organization when they do arise. Your policy should be specific about what conflicts you’re trying to avoid and how your organization ensures they will be avoided. Statements like, “Gifts of any kind will not be accepted from internal or external customers on behalf of the organization,” prevent your employees from that conflict. You can state that “in decisions that involve the organization as a whole, the board, chief officers and members of entry level staff will make decisions in the best interest of the company together” to avoid self-dealing. Be clear on the consequences if conflicts of interest are found in your organization, whether it’s immediate termination or a 3 strikes and you’re out rule. Establishing the policy is the first step to protect your organization overall.
Step 2: Establish How to Work Through the Conflict
Even if you have the most comprehensive policy out there, conflicts of interest may still not be avoidable. Therefore you should have a standard operation procedure in place that lays out the process to work through that conflict with any employees involved. Sitting down with the employee with the conflict of interest and establishing an effective way to work through the conflict is critical, especially if it’s an employee you wish to retain and your policy allows you to do so. Be clear on expectations and let them know which conflict of interest is in question, how your organization is aware of it, and in what ways the organization will support them through overcoming it. It’s important to note that while you may work through the conflict of interest and feel the bias is dead, you’ll need to monitor the situation to ensure it does not come back.
Step 3: Remain Transparent
A number one point with managing conflicts of interest in your organization is transparency. If your employees at all levels see your organization being open and transparent, you’re protecting the whole company. Employees will usually be able to spot conflicts of interest, so be sure to own up to any as an organization and be clear that the company is following the policy in place to protect everyone in the process. You don’t have to go into specifics like names and details, but if other employees are involved in the conflicts of interest, transparency is key to keep morale from tanking in the process.
Legal and Ethical Considerations of Conflicts of Interest
Conflicts of interest can present issues both ethically and potentially legally that you should be ready to face. Let’s look at the two major legal and ethical considerations to evaluate as an organization when it comes to conflicts of interest.
Pressure to Disclose
An employee who has witnessed a conflict of interest playing a major role in your organization may feel pressured to disclose the information. This can present a major issue. If it’s a legal issue, they may feel even more pressure to tell the right people but aren’t sure who and when. Employees can feel influenced to tell or can be persuaded to not tell by the employee in question, thus creating a terrible work environment for all. The pressure to disclose is one of the most dangerous ethical considerations with conflicts of interest. You don’t ever want your employees to be put in this position.
Business Reputation
Your organization’s reputation is on the line if conflicts of interest are rampant in your company. Employees may leave feeling disgruntled or may stay employed and share the conflicts of interest issues that are happening publicly. This not only creates ethical issues for employees feeling pressured to tell or not to tell, but could lead to legal ramifications as conflicts of interest surface and your organization tries to put back the tarnished reputation.
Topics
Shalie Reich
Shalie has over 4 years of experience working in a variety of HR positions and organizations including: working as an HR department "of one", working with a start-up based in Europe, to working in a fully established robust USA based HR department. Shalie has experience in multiple states and countries with all aspects of the HR spectrum. She has a passion to share her knowledge and experience to benefit the HR profession!
Frequently asked questions
Other Related Terms
Eddy’s HR Mavericks Encyclopedia
Conflict of Interest
A conflict of interest can do major damage to a company, whether it’s manager favoritism or executives making decisions for themselves. Read on to learn about the types of conflicts of interest that may be affecting your organization and what you can do about it!
What Is a Conflict of Interest?
A conflict of interest is best understood as a preconceived bias. No matter the situation at hand, if you have a bias prior to evaluating both sides for any reason that could compromise your judgment, it could be a conflict of interest.
Common Types of Conflict of Interest
Some types of conflict of interest will sound familiar and some might not. Let’s review the most common types of conflicts of interest to be aware of in the workplace.
Nepotism
Potentially the most common and widely known conflict of interest is nepotism: favoritism based on kinship. Nepotism usually takes place when someone in a position of power in the organization uses that power in favor of family or friends, whether they deserve it or not. Most organizations have a zero tolerance policy for hiring family or close friends for the same organization to avoid nepotism. While not always the only course of action, nepotism is difficult to avoid, so your organization may choose the path of least resistance and adopt a zero nepotism policy at your company too.
Gifts or Bribes
Most are familiar with the term “bribe” but may not realize that gifts are lumped into the same category and can be a conflict of interest. If you’re deciding between two external vendors and one sends you tickets to an NBA finals game, this could be a conflict of interest. While you may be able to keep your decision about the two companies completely bias-free, the “gift” or bribe can influence your opinion one way or the other, thus creating the conflict of interest.
Self-Dealing
Not all are familiar with this specific phrase, but most are familiar with this type of conflict of interest. Self-dealing is when someone in a position of power puts their personal interests before their business, co-workers, vendors or clients. This can be as simple as deciding to stay with a specific insurance as an organization during open enrollment even though it’s more expensive for the company and not the best option because the employee in power prefers that insurance. Self-dealing can go as far as insider trading when the employee in power uses their knowledge about a specific acquisition to increase their stock portfolio before the information is common knowledge. Self-dealing can be a dangerous type of conflict of interest and is more common than you think.
Why Is It Important to Be Aware of Conflicts of Interest?
Nothing can derail your organization faster than conflicts of interest embedded into your workforce. Let’s look at why it’s important to be aware of these below.
- Morale. Whether it’s nepotism or self-dealing, nothing will take down morale faster than employees catching on to favoritism or a leader in power putting themselves before their team. To maintain good morale, it’s important to be aware of any conflicts of interest and root them out.
- Internal corruption. Conflicts of interest within your organization can be a poison working its way through the company, often from the top down. Without awareness and knowledge, it can be hard to stop them from happening and protect your organization from corruption or potentially illegal issues that could harm your entire company.
- Litigation. Morale and internal corruption can be visible to your employees and could negatively affect your company. Disgruntled employees who have been slighted due to the conflicts of interest may choose to take the company down and expose these issues publicly.
How to Manage a Conflict of Interest
The importance of managing conflicts of interest is clear, so let’s look at how this can be done in your organization.
Step 1: Establish a Policy
Conflicts of interest are unavoidable in any organization. Humans are bound to be susceptible to one at some point in their professional careers, so the first order of business is to establish a policy that will protect your organization when they do arise. Your policy should be specific about what conflicts you’re trying to avoid and how your organization ensures they will be avoided. Statements like, “Gifts of any kind will not be accepted from internal or external customers on behalf of the organization,” prevent your employees from that conflict. You can state that “in decisions that involve the organization as a whole, the board, chief officers and members of entry level staff will make decisions in the best interest of the company together” to avoid self-dealing. Be clear on the consequences if conflicts of interest are found in your organization, whether it’s immediate termination or a 3 strikes and you’re out rule. Establishing the policy is the first step to protect your organization overall.
Step 2: Establish How to Work Through the Conflict
Even if you have the most comprehensive policy out there, conflicts of interest may still not be avoidable. Therefore you should have a standard operation procedure in place that lays out the process to work through that conflict with any employees involved. Sitting down with the employee with the conflict of interest and establishing an effective way to work through the conflict is critical, especially if it’s an employee you wish to retain and your policy allows you to do so. Be clear on expectations and let them know which conflict of interest is in question, how your organization is aware of it, and in what ways the organization will support them through overcoming it. It’s important to note that while you may work through the conflict of interest and feel the bias is dead, you’ll need to monitor the situation to ensure it does not come back.
Step 3: Remain Transparent
A number one point with managing conflicts of interest in your organization is transparency. If your employees at all levels see your organization being open and transparent, you’re protecting the whole company. Employees will usually be able to spot conflicts of interest, so be sure to own up to any as an organization and be clear that the company is following the policy in place to protect everyone in the process. You don’t have to go into specifics like names and details, but if other employees are involved in the conflicts of interest, transparency is key to keep morale from tanking in the process.
Legal and Ethical Considerations of Conflicts of Interest
Conflicts of interest can present issues both ethically and potentially legally that you should be ready to face. Let’s look at the two major legal and ethical considerations to evaluate as an organization when it comes to conflicts of interest.
Pressure to Disclose
An employee who has witnessed a conflict of interest playing a major role in your organization may feel pressured to disclose the information. This can present a major issue. If it’s a legal issue, they may feel even more pressure to tell the right people but aren’t sure who and when. Employees can feel influenced to tell or can be persuaded to not tell by the employee in question, thus creating a terrible work environment for all. The pressure to disclose is one of the most dangerous ethical considerations with conflicts of interest. You don’t ever want your employees to be put in this position.
Business Reputation
Your organization’s reputation is on the line if conflicts of interest are rampant in your company. Employees may leave feeling disgruntled or may stay employed and share the conflicts of interest issues that are happening publicly. This not only creates ethical issues for employees feeling pressured to tell or not to tell, but could lead to legal ramifications as conflicts of interest surface and your organization tries to put back the tarnished reputation.
Topics
Shalie Reich
Shalie has over 4 years of experience working in a variety of HR positions and organizations including: working as an HR department "of one", working with a start-up based in Europe, to working in a fully established robust USA based HR department. Shalie has experience in multiple states and countries with all aspects of the HR spectrum. She has a passion to share her knowledge and experience to benefit the HR profession!
Frequently asked questions
Other Related Terms
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