Defining and detecting non-compliant behavior should be very clear-cut. For example, employees should never pay bribes to obtain an undue advantage and gifts have a clearly set threshold, yet, when it comes to conflicts of interest, it can be much harder to discern what constitutes a compliance risk.
The deputy governor of the Bank of England, Charlotte Hoggs, can attest to that, when she, in 2017, less than two weeks into her job, had to resign for failure to declare a personal conflict of interest (COI). She had failed to disclose that the director in group strategy of Barclays Bank, an institution regulated by the Bank of England, was her brother. What’s notable is that the failure to disclose a conflict that potentially could jeopardize the integrity of her work was enough ground to prompt her resignation.
Whether they are potential, perceived, or actual, conflicts of interest have to be effectively handled by a company’s compliance function. The question, though, remains, how do you detect and prevent conflicts of interest from jeopardizing the integrity of your organization in time? Here are the seven steps we’ve identified that will steer conflicts of interest in your organization in the right direction.
Handling Conflicts of Interest: 7 Steps
1. Define the right policies
It all starts with the right policy. Craft a simple, yet clear policy and explain as astutely as possible to employees what constitutes a conflict of interest and why and how they must be disclosed. Avoid too much legal jargon and ensure that the policy can be read and understood by everyone in the company. Remember: the goal is to get your message across.
2. Integrate COI into your broader risk management strategy
That goes for all your mitigation activities as well. Identifying and assessing company risks and risk factors is crucial to informing your mitigation strategies. In which industry do you operate? With whom do you conduct business? Do you interact with government officials? These questions will be crucial in determining which situations may potentially trigger conflicts of interest. Keeping track of how your risk assessment evolves and changes over time will allow you to spot any potential conflicts and manage them as you go along. Being proactive is the name of the game when it comes to conflicts of interest.
3. Remember that training is key
The path towards effectively detecting and managing conflicts of interest is solid training and the best way to go about that is to couple your policy to the appropriate procedures. Guide employees and arm them with tools that allow them to identify a conflict when they see it. Granted, conflicts of interest are oftentimes not deliberate corrupt behavior, but unintentional bias, so as a first step, we must admit that, as humans, we are naturally inclined to be biased. Hence, identifying a list of red flags employees and managers alike should pay attention to would help them in detecting potential conflicts and declare them.
Tailor your training according to job descriptions. The last thing you want is employees skipping training because it is too burdensome or irrelevant to their work. For instance, if employees handle company data, couple your COI training to cybersecurity, while employees dealing with foreign officials should specifically understand how COI may arise in their day-to-day work.
The same goes for top management and the board of directors, managing the interests of different stakeholders may at times give rise to conflicts. Training should therefore also encompass top management, albeit, tailored training to discern situations that may trigger conflicts.
4. Couple Your COI Management with Your Third-Party Management Program
Just as you want to manage conflicts within your organization, you must carefully handle those that come with third-party vendors. The process does not differ widely from your internal one: Communicate clearly on your company’s stance on COI and carve out what you expect of your vendors, train third parties on how to raise concerns, and how to disclose them. If you already have an established due diligence process in place, pair it with your COI management so that you make sure that you pick up on them right from the start. Document them, just as you would with other identified risks in the diligence process and manage them along the way.
5. Manage and document your Conflicts of Interest Declaration Process
According to best practices, employees should be requested to declare any actual, potential, or perceived conflicts of interest upon hire, confirm their existence or absence once a year and be familiarized with the processes in which they can submit COI declarations at any given point in time. With that said, every company should be able to tailor the management process to its own needs.
Automated solutions can prove absolutely essential when managing declarations of both employees and third-party vendors. Consider the advantages of automation to do the heavy lifting of rolling-out COI declarations to new employees and set yearly campaigns, while reminder emails will spare you the hassle of chasing employees around. Tech solutions will also log your efforts leaving you with an auditable trail for later reference if needed.
6. Tone at the top
The role of top management in setting the tone at the top when it comes to regulating conflicts of interest is obviously important. Demonstrating objectivity, transparency, and integrity in their conduct and business is crucial to ensure that these values trickle down to the rest of the organization. Leading by example makes it clear that alternative means are not tolerated and will encourage a speak-up culture when conflicts are suspected. Set the example in concrete business strategies by, for instance, not pressuring sales teams into high performance and meeting targets no matter the costs.
7. Strong compliance culture
When it comes to regulating conflicts of interest it is all the more important to set the right culture of compliance. A strong compliance culture will incentivize the right behavior, steer away from compromising transparent decision-making, and raise the right questions when in doubt. The opposite is also true, a poor culture will discourage reporting and drive away the very employees who disapprove of opaque and ambiguous business conduct. In fact, according to the Ethics and Compliance Initiative, twice as many employees in strong cultures are more likely to seek guidance when uncertain compared to those who operate in poor corporate cultures.
Continue Learning About Conflicts of Interest
Conflicts of interest arise in a highly personalized context making them all the more difficult to pinpoint and lockdown in a document of reference. The proper management of conflicts of interest should, therefore, be driven by multiple efforts; an appropriate policy, adequate training, an effective COI declaration process, the right tone at the top, and a conducive compliance culture. All of these factors, together, will make up the building blocks of effective COI management.
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