The Importance of Proactively Managing Conflicts of Interest in Your Organisation
Proactively managing conflicts of interest—by encouraging early disclosure, fostering transparency, and implementing clear policies—helps protect an organisation’s integrity, mitigate risks, and build trust.
The Importance of Proactively Managing Conflicts of Interest in Your Organisation
In today’s complex business environment, managing conflicts of interest is important for maintaining integrity and trust within an organisation. If not addressed early, conflicts of interest can result in ethical breaches, legal challenges, and damage to an organisation’s reputation. Many corporate fraud, bribery, and corruption cases involve conflicts of interest that were either undisclosed or not managed effectively in their early stages.
It is important for all employees to understand their responsibility to identify and disclose potential conflicts before they occur and for managers to understand their role in assessing the risks posed by a conflict and to implement effective risk mitigation measures to protect their organisation.
A common misconception is that conflicts of interest should only be reported once they have materialised, which is often too late.
Proactive is always better than reactive!
Proactively declaring a potential or actual conflict of interest at an early stage allows management and the organisation to evaluate the associated risks and implement an effective risk management plan.
There is no such thing as being too early when it comes to disclosing a potential or actual conflict of interest, but you can certainly be too late! Afterall, once the conflict has materialised it is often too late, and you are now in damage limitation mode.
Fostering a culture where employees are encouraged to disclose conflicts early supports transparency, promotes integrity, and helps to prevent personal interests from compromising professional judgement. By addressing conflicts promptly, organisations can avert potential issues from escalating into significant problems and build trust with their employees, suppliers and customers.
To illustrate this point, imagine this common case study:
Harry works in the procurement team within his company and is involved in reviewing and approving new suppliers. He sees a new company, ABC Constructions, come across his desk that is being considered to join the supplier panel where they will receive building and maintenance contracts over the next few years. Being on this panel has the potential to generate millions of dollars for the successful suppliers.
Harry plays in his local football team and is good friends with Michael, the Managing Director of ABC Constructions. Each week Harry and Michael go for drinks post-game, and sometimes their families get together for social events. Even though Michael isn’t involved in the day-to-day work of delivering on building contracts, he does manage the company, and it is important to him that they get on this panel.
Both Harry and Michael are aware of the importance of this panel for both of their companies. Harry knows it’s important for his company to have access to the best contractors who deliver reliable and quality work at a good price. Michael knows that by being accepted onto this panel, he can count on solid revenue for the coming years.
Neither Harry or Michael want to jeopardise their respective roles at work and their involvement in this process so they both stay silent. Harry doesn’t let his employer know that he has a close personal relationship with Michael and remains involved in the supplier selection process. Likewise, Michael doesn’t remove himself from the process of submitting ABC Construction’s bid and the various phone calls and meetings that follows because he believes that as the MD, he is crucial to securing their spot on the panel.
In this scenario, if both Harry and Michael act with integrity throughout the process, it is still necessary for them to disclose their close personal relationship. Both individuals should have disclosed their relationship to allow both organisations to assess potential risks and implement measures to safeguard the selection process. Failing to proactively disclose the relationship can negatively impact the selection process, even if no impropriety occurred. Additionally, not disclosing the relationship prevented both organisations from taking proactive measures to protect the integrity and credibility of the selection process.
There’s a misconception that managing conflicts of interest only applies to actual conflicts. While managing real or actual conflicts is crucial, understanding the impact of perceived conflicts is equally important for building trust and maintaining integrity. In my experience, organisations often need to improve how they encourage the reporting of potential and perceived conflicts. A perceived conflict occurs when it appears as though your personal interests might influence your judgment or decision making in your official duties at work. Thus, a critical area for organisations to enhance trust is by improving their management of perceived conflicts of interest throughout the organisation.
- Set Clear Expectations: Establish a dedicated Conflict of Interest Policy for your organisation that clearly defines both actual and perceived conflicts of interest. Outline the process for disclosing and managing these conflicts. Ensure that these policies are easily accessible and regularly updated.
- Educate and Inform: An important area within organisations is delivering targeted conflict of interest training to all employees. This training should educate employees on what constitutes an actual and perceived conflict of interest (including the difference between the two) and provide details on the internal processes for reporting and managing conflicts. While many larger organisations may cover this topic through mandatory e-learning, it is worth considering when your organisation last invested in face-to-face training to educate employees on managing conflicts of interest.
- Encourage Open Communication: Although it may be challenging, the key to addressing this topic is to demystify it. During my training sessions with clients, I often pose two questions to leaders: 1. How well do they understand their organisation’s Conflict of Interest Policy? 2. How well do they believe their team understands it? Frequently, while leaders have a reasonable understanding of what constitutes a conflict of interest, they struggle to grasp the concept of perceived conflicts and the importance of addressing these early on. When I inquire about how often they or their team raise the issue of potential conflicts of interest for consideration, there is typically a stark silence. To encourage your employees to speak up and report potential conflicts of interest early, it is essential to cultivate a culture of transparency and open dialogue. Your employees should feel safe to raise concerns, seek advice, and request assistance in managing risks if such conflicts are identified. Reflect on this question: “When was the last time you discussed conflicts of interest with your team and set clear expectations regarding the early declaration of potential or actual conflicts?”
- Implement a Disclosure System: Develop a robust system for employees to disclose potential conflicts of interest. This system should be user-friendly and ensure confidentiality to encourage honest reporting. While this seems straightforward, achieving it in practice can be challenging. During investigations into potential or actual conflicts of interest, one of the first pieces of information requested is a copy of the organisation’s Conflict of Interest Register. Frequently, this register is a simple Excel spreadsheet. Occasionally, it may be a SharePoint register, also based on Excel. More often than not, the register is either completely empty or contains only a few entries from key individuals such as the CEO or Chief Risk Officer. Effective disclosure, recording, and management of conflicts of interest is perhaps the most significant area for improvement in most organisations. When interviewing individuals involved in a conflict-of-interest issue, common responses include “I informed my manager” or “I emailed it to my manager.” However, without a formal record of the conversation or disclosure, merely informing a manager is largely ineffective, particularly when proving that a conflict of interest was disclosed.
- Regular Audits and Reviews: It is important for organisations to conduct regular audits of their processes for managing conflicts of interest. While many organisations have policies and registers in place, it is essential that auditors thoroughly review these documents. Auditors should verify not only the existence of a policy and procedure but also the contents and maintenance of the register. An empty register may indicate inadequate reporting or oversight. Therefore, during audits, attention should be given to the number of disclosures made, the frequency of these disclosures, and the age of the most recent disclosure. Additionally, it is crucial to ensure that both potential and actual conflicts of interest are being recorded accurately.
To improve trust, transparency, and governance within your organisation, it is important to evaluate how conflicts of interest are managed. While many organisations have policies and registers in place, it is crucial to assess how conflicts of interest are actually being declared and managed across the organisation. The real risk lies not in policy documents or empty registers but in the practical application of these measures. It may be beneficial to invest in customised face-to-face training for senior managers, as well as mandatory conflict of interest training for all employees.
By adopting best practices and promoting a culture of transparency, organisations can proactively manage conflicts, thereby ensuring ethical decision-making and protecting their reputation.
Results we’ve achieved for clients
Developing a tailored Speak Up Integrity Hotline program for Bingo Industries
We partnered with Bingo Industries as an integrity-risk partner to develop and implement a Speak Up Integrity Hotline that supported Bingo’s values of working honestly and ethically.
