Conflicts of Interest – a matter of perception?

By Simon Webley

A day doesn’t seem to go by without a news story about a politician or business person who has failed to recognise that they have is a conflict of interest. When this comes to light, they pay the price with their reputation. 

In the Institute of Business Ethic’s  ( IBE) 2010 Survey  of Corporate Ethics Policies & Programmes  (available to download here), ‘managing conflicts of interest’ was identified by 70% of respondents as important to their organisation. Yet guidance provided about managing conflicts of interest seems to be failing to make an impact.

Why do these scandals continue to happen?

The answer I would suggest, is because conflicts of interest are as much about perception, as they are about reality.

Perhaps the most difficult aspect of the topic is where some cultural and regional customs may seem to run contrary to what others perceive as conflicts of interest.  For example, the Chinese practice of leveraging guanxi (special relationships) has been a traditionally accepted (and expected) approach for facilitating favourable circumstances for organisations and individuals.  In Africa, where family bonds are highly valued, nepotism is a common practice, and an employee may face ostracism for not hiring a relative for a position at the firm.  However, most Western-based multinationals actively discourage allowing personal relationships to influence an employee’s business judgment. 

It is important not to underestimate the difficulty of this issue. There are some regions where employees feel that hiring a brother, for example, will be in the best interest of the company as well as the right thing to do.

In general, many employees of companies with international operations may be unclear as to what constitutes a conflict of interest.  Companies have to be particularly diligent to develop conflict of interest standards and communicate these to their staff throughout the world.

 The following list highlights examples that companies should address:

– Participation on boards and panels

– Consulting arrangements

– Gifts and entertainment

– Relatives and friends

– Outside employment

– Personal payment for services (speeches, articles, etc.)

– Personal investments/transactions

– Relations with suppliers/vendors

Guidance on this issue should briefly explain why avoiding conflicts of interest is important for the organisation. For example:  an employee’s personal relationships may be perceived to compromise his/her business judgment; and, decisions clouded by personal interests can negatively influence the long-term welfare of the organisation. Good guidance is for an employee to declare the conflict and then remove themselves from the decision-making process.  (For further help on this issue, please see the IBE’s Good Practice Guide Globalising a Business Ethics Programme.)

As valuable as codes of ethics and policies are in guiding staff, the example from leadership is the most crucial element when it comes to influencing behaviour. This is where’ tone at the top’, that oft repeated phrase, is so important.  If staff see that their leaders (whether they be senior management, board members, or department heads) declare any potential conflict and do so with integrity, then they are likely to follow suit.

 Simon Webley is Research Director, Institute of Business Ethics. He can be reached at S.Webley@ibe.org.uk.

 

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