Conflict of interest certifications: Part One – Who and How

There’s one way to find out if a man is honest – ask him.  If he says, “Yes,” you know he is a crook.  Groucho Marx

There is, of course, something to this bit of Marxist logic. But, on balance, the benefits of “asking” in a C&E program can be considerable, and one asking-based tool that has existed for many years is the certification.

Should an organization require employees to execute on a periodic basis certifications regarding actual or apparent COIs?  If so, what should be the content of the certifications? And should an entire employee population receive them?

While not advisable for every entity, this type of process can, I believe, be useful for reminding employees (in a way that a terse general code of conduct certification does not do) of the organization’s specific COI standards and requirements.  Certifications indeed often will surface  COIs that have not otherwise arisen through other C&E processes. 

While they might elicit denials regarding truly illicit behavior (Groucho’s thesis), that is less true of many other, less nefarious sorts of COIs.  As one reader of the Blog wrote to us, “employees are often confused about COIs and don’t think they have one when they do or at least when there is an appearance of a possible conflict. [Certifications] seem to be a good way to help employees focus on specific activities that can present a conflict.”

However, certifications are clearly not for everyone. Whether an organization should undertake this sort of effort – which can require a substantial time commitment – depends on a variety of factors.  In effect, this is a form of risk assessment, which should typically include the following considerations:

Likelihood:  How likely is the process to uncover an otherwise unidentified COI?  And, how likely is a certification to prevent an otherwise undeterred COI?

Impact  How harmful could such a COI be – meaning one that would likely be deterred or detected and addressed by the certification process but not other ways?

Other benefits.  Are there other high-risk activities (e.g., “sensitive payments,” contacts with competitors) that should be added to a COI certification, and, if so, what does a likelihood and impact assessment of those topics add to the analysis?

Capacity:  Does your organization have the resources to follow-up on all “yes” answers or failures to respond?  (This is a deal breaker for many companies.)

Finally, this analysis should not necessarily be performed on an all-or-nothing basis.  Even if it does not make sense to require all employees to execute certifications – as, in my experience, is frequently the case – there may still reason to do so for managers and others in sensitive positions (e.g., procurement; “control” functions – such as law, finance, human resources and audit; and, in some organizations, sales). 

Conflict of Interest Certifications: Part Two – Content

In a recent post we discussed the “why” and “who” of COI certifications.  Below, we examine what is typically covered by a COI certification (the “what”)..

First, the basics tend to be questions around the following issues:

– Employment (of oneself or family members) with or consulting for an entity doing or seeking to do business with or competing against the company.

– Holding a financial interest (again, involving oneself or family members) in the above-described types of organizations.

– Employment of relatives at the company.

– Gifts, entertainment and travel involving any person or entity doing or seeking to do business with the company (including loans involving such persons or entities).

Sometimes these questions are asked broadly, other times in terms of the employee’s area of responsibility (e.g., do you have any procurement- or management-related duties concerning any entity in which you or a family member have an ownership interest?)

Second, less frequently one also sees questions concerning:

– Any other outside employment or consulting (i.e., regardless of whether it involves a competitor, supplier, etc.)

– Service on a board (of directors or advisors).

– Anti-corruption requirements – questions involving employees of governmental entities and, less commonly, union officials.

– Corporate opportunities.

– Purchases, sales or leases of property involving the company.

– Holding government office (presumably on a part-time basis) – which is generally relevant only to organizations that have significant dealings with a large number of local governmental bodies, like energy utilities; and

One should ask, in substance:  Do you have any other relationships, etc., that might reasonably be regarded as creating an actual or apparent conflict of interest with your responsibilities to the company?

Finally, note that this post is not offered as a comprehensive list of COIs. But it will hopefully be helpful to some of those in the C&E looking to move forward in this ever challenging area.

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