Conflicts of interest are nothing new to compliance officers. They are bound to happen at some point due to the complexity of modern organizations. If managed appropriately, they generally do not pose a problem for the organization. However, when not handled correctly, they can quickly turn into a serious matter for all concerned. Conflicts of interest are considered a form of corruption which means compliance officers have the responsibility to detect, address, and track any instances of such corruption. So, what do you do? Here’s the best way to approach and manage conflicts of interest within your organization.
What is a Conflict of Interest and Why Does it Matter?
A conflict of interest arises when an individual in an organization has competing professional obligations or personal or financial interests which can potentially influence the exercise of his or her duties. Private or personal interests include, among others, family and other relatives, personal friends, the clubs and societies to which an individual belongs, private business interests, investments and shareholdings, and any person to whom a favor is owed.
Hiring your brother’s daughter to do him a favor, allowing your friend who works at your supplier to get around the bidding process, or opening a side business to your regular job which competes with your employer’s business, are all prime examples of conflicts of interest. Even if these are not harming the business, they are still considered corruption, which is why they need to be disclosed so appropriate measures can be taken. The most common forms of conflicts of interest are nepotism, diversion of business opportunities, accepting benefits from third parties, close relationships with competitors, regulators, or business partners, outside employment, and professional activities.
As you manage conflicts of interest, you need to ensure that employees are aware of the company’s policies in all these areas. From a Chief Compliance Officer’s (CCO) perspective, conflicts of interest can be perceived, potential or actual and will need to be handled accordingly. A close look at the situation as well as an assessment of the immediacy and severity of it needs to be conducted to assess whether the situation qualifies as a conflict of interest. If so, subsequent measures to resolve the conflict of interest can be taken.
Failing to manage conflicts of interest can have negative consequences for your organization. Public trust and confidence in your organization could decrease and your reputation might suffer, which will, in turn, result in increased expenses in the form of time, energy, and resources to mitigate these consequences. When an actual conflict of interest arises, the effectiveness and integrity of your organization’s decision-making processes might be hampered and at risk. As such, inadequately or insufficiently managed conflicts of interest represent a significant risk for all organizations.
How to Manage a Conflict of Interest
Every organization should strive to create a culture of ethics and trust by setting the right tone at the top. Clear messaging on how to manage a conflict of interest should be part of the tone at the top, making everyone in your organization aware of this type of corruption. This also contributes to creating a safe environment in which employees are not afraid to bring up and disclose conflicts of interest.
Ultimately, the key to successfully managing your conflicts of interest are adequate policies. Your organization needs to establish clear policies about what constitutes a conflict of interest and in which cases these need to be disclosed. Policies should, therefore, include a number of crucial points:
- Define who the interested persons are.
- Detail which types of relationships potentially represent conflicts of interest and thus need to be disclosed.
- Describe how your organization defines a potential financial interest.
- Outline your organization’s procedure for handling, addressing, and recording conflicts of interest.
- State the duty to disclose actual or potential conflicts of interest.
- Explain what happens in case of policy violations.
Make sure that your policy is proportionate to the severity of a potential conflict of interest, and disseminate the policy to your organization and all relevant parties. Find further information about the hallmarks of an effective COI process in our eBook, The Definitive Guide to Conflicts of Interest.
In addition, training is crucial. Putting your policies into context will help your employees better understand them. Interactive training explaining what conflicts of interest are, why they matter, and how employees should react when confronted with a potential conflict of interest, will ensure a common understanding of conflicts of interest in your organization.
Reporting and Automating Conflicts of Interest
Lastly, your organization should have tracking and reporting systems in place, which help manage the conflicts of interest disclosure process. An appropriate system will facilitate communication between compliance officers and the disclosing employee. Being able to see at a glance who received policies, completed their training, or signed their disclosure questionnaire will help you tackle conflicts of interest effortlessly. A reporting tool will ensure you keep a level head and overview of important investigations and different conflict resolutions. The right technology solution can help you simplify these processes and procedures.
Conflicts of interest are nothing to dread. Creating a safe environment and a non-intimidating process which encourages employees to report and disclose conflicts of interest in an open and honest way is crucial. An automated compliance system can be the key to a smooth and powerful conflict of interest process. Learn more by downloading the Buyer’s Guide to Compliance Technology, this eBook highlights the top considerations when considering a compliance technology investment.