Assessing Conflict of Interest Risks: the Sixth and Final Post in this Series

Prior posts in this series  (see link in first paragraph of this post) covered the need (as a matter of law and sound practice) for conducting COI risk assessments; the ways to use risk assessment information in compliance efforts; and a possible analytic framework for assessment, looking at the reasons and capacities for, and impacts of, COIs.  In this post, we make several other points about COI risk assessment methodologies.

First, while COI related risk assessments often (and appropriately) focus on the “buy” side (i.e., procurement), selling related COIs can pose real risks, too.  In that regard, I can recall two cases of harmful COIs that flew under the radar of companies whose COI compliance efforts were largely buy-side focused.

Second, a COI risk assessment should also seek to determine what the risks are of “causing conflicts in others.”  That is, with respect to the parties with whom an organization deals (suppliers, customers, others), one should seek assess whether, how, why  and where the organization could create COIs within such a  party.

Third, a COI risk assessment should include moral hazard and behavioral ethics related risks.

Fourth, one should consider geographic dimensions of COI risk – particularly with respect to cultures in which “fairness” in business transactions is emphasized less than family ties and other personal relationships. (See Lori Tansey Martens’ posts for more information on different cultures’ approaches to COIs.)

Fifth, COI risks should be assessed on both a “gross” and “net” basis – with the former excluding and the latter including the impact of existing controls. This is necessary not only for an accurate assessment of current risks, but also to help prevent against backsliding in the future. 

Finally, a risk analysis should not only seek information about the current risks of COIs but also where future conflicts are reasonably foreseeable given the nature of industry-wide and other “macro” trends relevant to the organization, and possible changes to its business from acquisitions, new product or service lines or strategies or changes to distribution or sales methods and customer types.

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