Family and Friends

Under what circumstances do the interests or actions of an employee’s friends or family count for COI purpose? What is the right balance of compliance versus privacy when it comes to these issues? This section of the blog will examine these issues both from the perspective of case studies and compliance measures.

Trump Princelings?

The most recent post on this blog concerned the possibility of President Elect Trump putting his assets in a trust which would be managed by his children to avoid conflicts of interest that could arise from his management and ownership of such assets while in office. Since then an unrelated legal development has occurred which further underscores the challenge facing Trump: the announcement that JP Morgan was settling the “Princeling” case, which involved the bank’s hiring the sons and daughters of important Chinese officials in return for business. The case (which will likely be followed by others of its sort) is a timely reminder that helping one’s children can inspire corruption – and not just in China.

A famous instance of this sort from the 1980s concerned the hiring (by a former Miss America) of a NY judge’s daughter to influence the judge’s decision on a pending case. And then there are the immortal words of the first Mayor Daley who, in speaking to colleagues on the  Cook County Democratic Committee, defended his having directed a million dollars of insurance business to an agency on behalf of his son John by saying: “If I can’t help my sons, then [my critics] can kiss my ass. I make no apologies to anyone.”

Indeed, helping one’s children might  be a more powerful source for wrongdoing than is pure self-centered greed, for the very reason that it seems to spring from a sense of duty. (An old saying goes that if you’re not stealing from your company you’re stealing from your family.)

Note that I’m not suggesting that Trump would use his influence to get jobs for his kids or direct government business to them. But if they are running his far-flung, secretive and complex business empire  he will have plenty of opportunities to use his influence to benefit them.

None of this means that Trump’s children are destined to serve as “princelings.” I should also stress that I have no reason to think they would do anything unethical. Seriously.

Rather, the focus of this post (and indeed this blog generally) is more about structures and circumstances than it is individual personalities. In effect, the princeling analysis is part of risk assessment, even if it is speculative; it is not an accusation.  More specifically, the JP Morgan case reminds us that in designing (or agreeing to)  an approach to address the COIs relating to his assets, Trump needs to  have procedures that will help  avoid not only direct COIs but those involving his sons and daughters as well – and give the public comfort that those procedures are up to the task at hand.

Just friends? Chris Christie and Jerry Jones

A long time ago – before Enron, World Com and Sarbanes-Oxley – business ethics issues in general and conflicts of interest compliance requirements in particular had little prominence in the work lives of the average employee.  But now – through codes of conduct, policies, training, certifications, hotline calls, investigations and discipline – that has changed.

Of course, not all ethics issues are of equal interest to all employees.  But COIs tend to be high on the list, because of their inherently personal nature.  In the post-Enron era, employees who used to be allowed to receive hospitality from suppliers often now are barred from doing so.  And to a large degree they accept that as being good for their companies and therefore ultimately good for themselves – so long as the rules apply to everyone equally.   Indeed,  when one of their colleagues breaks those rules the hotline can ring off the hook – often motivated not by jealousy but a sense of fairness that is truly innate to the human species. (For more on the evolutionary foundation of fairness as a moral value see this chapter from Jon Haidt’s The Righteous Mind.)

Over the past week, the story of NJ governor and presidential aspirant  Chris Christie  and family being flown to a Cowboys game in Dallas by the team’s owner Jerry Jones and being entertained in Jones’ sky box has been oft told in the press and echoed by football fans throughout the country too.  The COI issue is that a company in which Jones was a significant investor received a lucrative contract with the Port Authority, an entity over which, as governor of New Jersey, Christie has powerful influence (and also an entity which has been plagued by patronage).  Here is an article from In These Times  with more details about the story.

Christie’s defense is that he and Jones were  personal friends. While it is true that the relevant NJ ethics code does permit gifts from personal friends, this cannot mean what the governor claims as that would essentially permit any government employee to receive a gift from any vendor by declaring his or her friendship with that vendor. Not only would such a loophole gut the ethics law, it would encourage vendors and government employees to become real friends  – thereby making the COI worse and further discouraging ethical vendors from competing for the government’s business. (For the details of the purported Christie-Jones friendship see this story  – in which the governor says the friendship started only a few months after Jones’ company got the Port Authority contract, which underscores that this is not the kind of relationship for which the gift exception was designed.)

As a former federal prosecutor who brought many corruption cases, the governor almost certainly knows that this interpretation of the ethics law is untenable.* But as a politician with his eyes on the White House he seems to have made the choice that his “jury” – potential voters – won’t care.

Years ago, another brash politician – the first Mayor Daley of Chicago – was caught in a conflict of interest involving a family member getting government business, and responded:  “If I can’t help my sons, then [my critics] can kiss my ass. I make no apologies to anyone.”  Given the broad tolerance for COIs at the time,  it is not surprising that this didn’t seem to hurt him (at least from what I recall about the incident).

But in the post-Enron era that way of thinking may no longer make sense.  As noted above, many American workers are reminded constantly about the importance of an ethical approach to COIs – and know that if they tried to do something like what was done here they would probably be fired.  And the obvious unfairness of a double standard like this could end up hurting Governor Christie in ways that the late Mayor Daley could not have imagined – but which the governor should have foreseen.

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* The Justice Department’s example of when the personal relationship exemption to gift rules applies:  Jenny is employed as a researcher by the Veteran’s Administration. Her cousin and close friend, Zach, works for a pharmaceutical company that does business with the VA. Jenny’s 40th birthday is approaching and Zach and his wife have invited Jenny and her husband out to dinner to celebrate the occasion. May Jenny accept? Yes.Gifts are permitted where the circumstances make it clear that the gift is motivated by a family relationship or personal friendship rather than the position of the employee.

Some other reading of possible interest:

A story from several years ago about a Justice Department Inspector General Report finding travel expense abuses by Christie when he was a US Attorney.

An earlier post on attendance at sporting events and COIs.

 

Risk assessments for office romances

Perhaps the most celebrated story ever about a love affair is Anna Karenina  and the story doesn’t end well – as the distraught heroine throws herself under a train.  Office romances typically don’t end that way, but they are not without risks – particularly those involving senior leaders.

This is indeed an oft-told tale. Here is an earlier post on “frisky executives” discussing one such case from 2012.  Others around that time involved the CEOs of Lockheed Martin and Best Buy. And the latest in this line concerns the CEO of Johnson Controls.

As described in this article of a few weeks ago in the Milwaukee Business Journal, that CEO “failed to inform the corporation’s audit committee about the potential conflict of interest in his extra-marital affair with a consultant hired by the company.”  The net result: a reduction “of his annual incentive performance plan payout to $3.92 million, down nearly $1 million.”

A few thoughts on this case, perhaps of use to any CEO conducting a pre-office affair risk assessment.

First, while the economic hit is high it seems justified for a high ranking official – anything less could be seen as a slap on the wrist. Indeed, one of the cases discussed in the “frisky executives” post also involved a million dollar penalty. So, don’t expect economic leniency.

Second, consider the risk to the other party. In the case of the Johnson Controls executive, she was a consultant in a firm that lost an apparently long standing client in the scandal. No surprise there either.

Finally, while disclosure is necessary it may not be sufficient to prevent harm.  That is because even if an actual COI can be avoided the appearance of a COI might be inescapable – as the natural suspicion among others in the workplace could be that with the relationship comes workplace favoritism. For more on how some  apparent COIs simply can’t be mitigated by disclosure see this post.

(Thanks to COI Blog reader Don Bauer for letting me know about this story.  And, happy new year to all.)

 

Friendship – and the ties that blind (directors to conflicts of interest)

King Herod the Great had something of a problem: he had backed the losing side in the contest between Marc Antony and Octavian to rule Rome,  and now fully expected to lose his life for it.  But, as described in Jerusalem: the  Biography, by Simon Sebag Montefiore,  when they met he cleverly asked Octavian “not to consider whose friend he had been but ‘what sort of friend I am.’”  Octavian was evidently persuaded by this, for not only was Herod’s life spared but the size of his kingdom was increased.

Loyalty is, of course, fundamental to friendship.  But, while potentially more physically dangerous in the Roman Empire than it is today, friendship in our world can be ethically treacherous.

In “Will Disclosure of Friendship Ties between Directors and CEOs Yield Perverse Effects?”  (to be published in the July 2014 issue of the Accounting Review), Jacob M. Rose, Anna M. Rose, Carolyn Strand Norman and Cheri R. Mazza  describe how they conducted thought experiments involving both actual corporate directors and MBA students to determine  whether “directors who have  friendship ties with the CEO [are more likely that are directors without such friendships] to manage earnings to benefit the CEO in the short term while potentially sacrificing the welfare of the company in the long term” and also whether “public disclosure of friendship ties mitigate or exacerbate such behavior, and will disclosure of friendship ties influence investors’ perceptions of director decisions.”

Sadly but not surprisingly, their research  found “that friendship ties caused directors to be more willing to approve reductions to research and development (R&D) expenses that cause earnings to rise enough to meet the CEO’s minimum bonus target more often than  when the directors and CEO were not friends.” Seemingly more of a surprise, they also found that “disclosing friendship ties resulted in even greater reductions in R&D expenses and higher CEO bonuses than not disclosing friendship ties.”

But this latter finding is not so surprising – given other  behavioral research showing that disclosure can “morally license” individuals  to act inappropriately when faced with a conflict of interest ( as discussed in this   and other prior posts.) As described in a recent piece in the NY Times  by Gretchen Morgenson, one of the study’s authors explained: “When you disclose things, it may make you feel you’ve met your obligations…They’re not all that worried about doing something to help out the C.E.O. because everyone has had a fair warning.”

Morgenson added: “There are two messages in this study. One is for regulators: Simply disclosing a conflict or friendship does not eliminate its potential to create problems. The other,” again quoting one of the study’s authors (but echoing Herod) “is for investors: ‘Shareholders should take a more active role in finding out what kinds of relationships their boards and C.E.O.s have…and recognize the potential traps created by them’.”

For more on conflicts of interest and directors see the posts collected here .

 

Supervising spouses and other family members in the workplace

A story earlier this week in the NY Daily News  reported:  “The doctor picked by [NYC] Mayor de Blasio to run the municipal hospital system was slapped with a conflict-of-interest ruling after his wife went to work for the hospital he was overseeing. The city Conflicts of Interest Board issued its ruling against [the doctor] in 2008, but allowed the arrangement to continue as long as [he] avoided matters involving his wife…”  The particulars of the case are not especially interesting, but it did serve to remind me that in the more than two years of its existence the COI Blog has yet to cover the often important issue of supervising family members at work.

But first a disclosure: my parents met in a workplace (the newsroom of the Minneapolis Tribune, in the 1940’s), where my father (then a night city editor) supervised my mother (then a police reporter) and, but for the personal relationship they formed there, I literally would not exist.  So, I have what could be called an existential bias on this issue.  On the other hand, at least judging by the classic film about journalists about that era – His Girl Friday – maybe workplace relationships weren’t  prominent on the ethical radar in the industry then, so perhaps I’ve over-disclosed (which comes with writing a COI blog, and for which my mother will hopefully forgive me).

But in the contemporary world, conflict-of-interest issues involving supervision of family members in the workplace can be among the most sensitive that a C&E officer ever faces.  Often one (and sometimes both) of the individuals involved is at a high level within the corporate hierarchy, making the issue as inviting to approach as a field of landmines.  Moreover, because of the strong loyalty instincts that people tend to have about their families, allegations about conflicts of this sort often trigger strong defensive reactions – as discussed in this earlier post  (which should be read mainly  for the immortal story about the late Mayor Daley’s saying – with respect to his having the city of Chicago do business with one of his children:  “If I can’t help my sons, then [my critics] can kiss my ass.”)

On the other hand, other employees may feel deeply resentful of those involved – particularly where the relatives in question are seen (rightly or wrongly) as receiving favored treatment and benefiting from job-related opportunities that otherwise might have gone to such other employees.  The others could also feel stifled in how they do their work.  For instance,  many employees might  be  uncomfortable criticizing a favorite business idea that the spouse of a senior executive has – even if they  think it is no good. Unlike most other COIs, those involving family members on the job tend to be very visible  – and grating, possible even on an everyday basis.

Not surprisingly,  many companies’ COI policies address the issue of supervision of family members.  A somewhat typical policy of this sort is the following from Tower Bank: “The potential for conflict of interest clearly exists if your spouse, partner or immediate family member also works at the Company and is in a direct reporting relationship with you. Officers or employees should not directly supervise, report to, or be in a position to influence the hiring, work assignments or evaluations of someone with whom they have a romantic or familial relationship.”

Of course, a direct reporting relationship between spouses is widely seen as being problematic – and that part of the rule should be easy to apply.  But the “being in a position to influence” part of the rule is much broader, and presumably anyone higher up in a reporting chain is in such a position regardless of how many layers there are in between.

Still, the more layers there are, the more checks against abuse exist – even if they are not strong checks (since they rely on subordinates in preventing and detecting conflicts by their workplace supervisors).  One company that relies explicitly on the number of such layers is United Technologies, whose policy asks the question, “[i]s it a Code of Ethics violation for my spouse and myself to work in the same department at our UTC Division?” and provides this answer: “In most instances this would not be a problem as long as neither employee reported to the other. A sufficient number of reporting levels (at least three) between supervisor and family member must exist to preclude conflict of interest issues.” While not a cure-all, this seems like a strong approach to me.

A final point: given the nature of this particular type of conflict the concern is often less actual COIs than apparent ones.  For this reason, effective mitigation must address the issue of what will employees think about a proposed solution to such a COI – including the broader question of whether such a solution will undermine the workforce’s view of management’s commitment to ethics in general.   More on apparent COIs can be found here, but the bottom line is that this is among the most difficult types of COI to mitigate.

Conflicts of interest and constitutional rights

Can a conflict of interest be protected by a constitutional right?  The answer is Yes.  Campaign finance – at least in the US – is a prominent (some would say glaring) example of this.

But what about in the more common context of employment?  Again speaking specifically of the US, the issue is most likely go come up in cases of government employment, given that most constitutional provisions apply to government – but not private – action.  But that doesn’t mean that public sector challenges to COI standards are irrelevant to the private sector C&E context – because, even where not binding,  some constitutional norms (such as free speech and due process) help shape the expectations of individuals in dealing with institutions of all kinds. Indeed, public sector COI cases  – because they are more publicly available than private sector ones – can form a useful body of precedent for private sector C&E officers, as discussed in this earlier post.

The most recent case of note from this neck of the woods  is a decision handed down two weeks ago (Carrigan v Nevada Commission on Ethics) by the Supreme Court of Nevada (downloadable at http://supreme.nvcourts.gov/)  in which Michael Carrigan, a councilman from Sparks City, made several constitutional-rights based claims with respect to that state’s Ethics in Government Law.  The state’s “Ethics Commission censured … [him] for voting to approve the Lazy 8 hotel/casino project despite a disqualifying conflict of interest. The conflict of interest grew out of [his] relationship with Carlos Vasquez, Carrigan’s longtime friend and campaign manager. For the six months leading up to the Lazy 8 vote, Vasquez was managing Carrigan’s reelection campaign free of charge—the third such campaign Vasquez had managed for Carrigan— and placing Carrigan’s campaign ads at cost. At the same time, Vasquez was receiving a $10,000-a-month retainer from the Lazy 8’s principals,…. Vasquez openly lobbied the Sparks City Council to approve the Lazy 8 project and testified before the body as a paid consultant. Several citizens complained to the Commission that Carrigan should not have voted on the Lazy 8 project because of a conflict of interest. An evidentiary hearing followed, at which both Carrigan and Vasquez testified. After deliberation, the Commission issued a written opinion, which included findings of fact and conclusions of law. The Commission’s findings of fact included findings that Vasquez ‘has been a close personal friend, confidant and political advisor’ to Carrigan ‘throughout the years’; that Carrigan ‘confides in Mr. Vasquez on matters where he would not confide in his own sibling’; and that ‘[t]he sum total of their commitment and relationship equates to a ‘substantially similar’ relationship to those enumerated under [the law], including a close personal friendship, akin to a. . . family member, and a ‘substantial and continuing business relationship.” The Commission found that under these circumstances, “a reasonable person would undoubtedly have such strong loyalties to this close friend, confidant and campaign manager as to materially affect the reasonable person’s independence of judgment” on the Lazy 8 hotel/casino project,” and further “found that Carrigan violated [the law] by not abstaining from voting on the Lazy 8 matter” (although “it imposed no civil penalty or fine because it deemed his violation not willful”).

Carrigan appealed from this decision on a number of constitutional grounds.  First, he claimed held that his “vote on the Lazy 8 hotel/casino project constituted protected speech under the First Amendment.”  While the state supreme court initially agreed with him on this, the US Supreme Court reversed, holding: “’[T]he act of voting,’ by an elected official on a local land-use matter symbolizes nothing,” and therefore cannot be seen as speech at all.

Second, he argued that the recusal provision at issue was unconstitutionally vague, particularly the law’s “enumeration of types of relationships that are disqualifying (household, family, employment, or business)” which included “’any other commitment or relationship that is substantially similar’ to those listed.’” The court disagreed, stating that this catch-all language “does not sweep in entirely new types of relationships. Rather, it closes potential loopholes in the Ethics Law by giving the Commission the flexibility to address relationships that technically fall outside the four categories enumerated [above] yet implicate the same concerns and are substantially similar to them, such as a relationship with a domestic partner or fiancée.” Indeed, as the court noted, when the law was enacted the legislature heard specific testimony that  if “’the same person ran your campaign time, after time, after time, and you had a substantial and continuing relationship, yes, you probably ought to disclose and abstain in cases involving that particular person.”

Finally, Carrigan argued that the ethics law “unconstitutionally burdens the First Amendment freedom-of-association rights shared by Nevada’s elected officials and their supporters.” Here, the Court noted the statute protects (albeit in somewhat convoluted language) what might be called classic association rights but not situations involving benefits or detriments to individuals greater than those “accruing to any other member of the general business, profession, occupation or group,” an exception that plainly was not apposite in this case (and presumably would not be operative with any true COI).

 

How not to get your next job

A prior post catalogued various  COI issues arising from moving from one job to another. To this inventory should be added the recent case of David Ostermeyer (which was brought to my attention by a COI blog reader, for which I am grateful).

As described in this press release issued on October 25, 2013 by the Department of Justice,  Ostermeyer had been the Chief Financial Officer of U.S. Agency for International Development (USAID) and “shortly before [he] retired from the USAID, he helped the agency draft a contract solicitation for a senior advisor – a position that Ostermeyer intended to apply for after he retired.  In an effort to ensure he would be awarded the position, Ostermeyer allegedly tailored the solicitation to his specific skills and experiences.”

The press release further notes: “Federal conflict of interest laws prohibit executive branch employees from participating personally and substantially in matters in which they have a financial interest.  Since Ostermeyer had a financial interest in the contract solicitation, the government alleged that he could not participate in drafting it and, therefore, violated 18 U.S.C. § 208(a),” which is one of the Federal COI statutes.  Ostermeyer agreed to settle (without admitting wrongdoing) and pay a penalty of $30,000.

For those interested in learning more about the federal COI law – violations of which, in some instances, can be prosecuted criminally as well as civilly – the web site of the Office of Government Ethics (“OGE”) is the place to start.   Of course, other governmental entities have their own COI rules – and sometimes have web sites like that of OGE.   (An example that is rich in information – particularly concerning prior enforcement actions – is the web site of the NY Conflicts of Interest Board. Among other things, much of what’s on this and similar web sites can be useful for drafting COI policies and designing COI training.)

Even smaller municipal governments than that of NYC often have COI issues, too. Indeed, the very size of small communities may make COIs relatively more likely to occur in their governmental bodies than in those of larger municipalities  (i.e., on average, I assume there would be a higher percentage of people with multiple roles, and thus opportunities for conflicts, in the former than the latter). Also,  local governmental units may well lack robust ethics-related controls that larger official entities more typically have, as noted in this prior post. On the other hand, where ethics issues involve dealing with neighbors instead of strangers,  there would seem to be a greater chance  of virtue prevailing (although note that I may be stretching the logic of certain behavioral ethics research a bit in saying this and indeed some findings in this area suggest an opposite impact of closeness on ethicality).

Indeed, in the very town where I live – Princeton, New Jersey – the top local news story of the past week was the mayor’s decision whether to participate in negotiations with Princeton University (over the issue of  voluntary payment-in-lieu-of-taxes contribution to the town)  given that her husband is employed as a professor there. While “the town attorney, had given an opinion in August saying the mayor’s marriage did not constitute a conflict of interest under the state local government ethics law,”  the mayor commendably determined that the issue had become too much of a distraction for the town government and so decided to recuse herself from taking part in the negotiations. One wishes that the former USAID official had shown the same degree of sensitivity to COIs that the mayor did, and I imagine that he now does too.

Nepotism – the most powerful conflict of all?

In 1973, in speaking to colleagues on the  Cook County Democratic Committee, Mayor Richard Daley of Chicago defended his having directed a million dollars of insurance business to an agency on behalf of his son John with the immortal words: “If I can’t help my sons, then [my critics] can kiss my ass. I make no apologies to anyone.”

This analysis aside, nepotism can be a tricky subject to address.  There are, of course, countless instances of nepotism being good for business, as recounted in this 2009 article in Forbes.  Moreover, not all cultures view nepotism-related issues through a Western lens, as described in this earlier post by Lori Tansey Martens:   “I remember conducting an ethics workshop for a major multinational company in Africa. We presented a conflict of interest scenario about hiring a brother-in-law as a supplier, but the participants were aghast at the ‘correct’ answer, which was not to hire the family member’s firm.  ‘It is unethical for me NOT to hire my brother-in- law if he is qualified – and he will do a better job for my company because he is my brother, and therefore more accountable to me,’ said one participant, summarizing the feelings of the entire group.”   Additionally, irrespective of this economic analysis (family ties as promoting accountability), nepotism surely has its roots in evolution – as reflected in loyalty being one of the six universal moral foundations identified in Jonathan Haidt’s landmark book, The Righteous Mind.   Finally, as noted in the Forbes piece, there is no broad legal prohibition against nepotism.  In many settings, it is perfectly legal.

On the other hand, it is not always legal, as (among other things) family members have played significant roles as the vehicles of corruption in FCPA prosecutions, as recounted in this piece in the FCPA Blog.  Indeed, the World Bank has identified nepotism itself as a form of corruption.  Moreover, precisely because of its deep origins in our evolutionary past, nepotism may be the most potent conflict of interest of all.   There are, after all, many things we would do for our children that we wouldn’t do for ourselves.  In a test of strength it is a good bet that family ties will overwhelm those born of less deep-seated fiduciary duties.

Additionally, the harm caused by nepotism is not limited to sub-standard job performance by family members.  It can, I believe, also imperil the sense of organizational justice that serves as the foundation for any ethical culture.  As described in this earlier post (about organizational justice and COIs generally):     “The special harm that COIs can cause to organizational justice arises from their frequently personal nature: because COIs often involve a personal benefit to an individual employee that is denied to others, the latter (i.e., rule abiding employees) can feel personally harmed (from a relative perspective) by the COI in a way that they would not feel, for example, with an antitrust offense or violation of export regulations.” More specifically, the very reasons that make nepotism appealing to the beneficiaries of the practice may make it loathsome to others – i.e., those who don’t share in its benefits –  and this, in turn, can undermine the ethical performance of an organization generally.

Finally, I should stress that I don’t mean to suggest by the way I ordered this post that the nays always have it when it comes to nepotism.  Indeed, consistent with this blog’s focus on “moral hazard”, I find the above-described accountability argument to be intriguing – at least enough to make it worth exploring further.  The point  of this post  is merely that – at least for some business organizations  – nepotism should be a topic for soul searching, and for carrying the ethical analysis further than the late mayor did.

Conflicts of Interest: A governance challenge or a moral maze?

By Judith Irwin, Institute of Business Ethics

Let’s start at the beginning.  What is a conflict of interest?  Wikipedia defines it as ‘a conflict of interest occurs when an individual or organisation is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other’.  Is this an accurate description?

Arguably, it is unwise to attempt to define a conflict of interest in absolute terms, for like many things in life, there is more than one definition.  What is deemed to be a conflict of interest in one social or cultural context may be entirely appropriate in another.  The same decision can be interpreted as entirely legitimate in a different setting.  Take the example of nepotism in Africa. 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.  

Who decides what constitutes a conflict of interest in a business context? A company’s board directs the policy, actions and affairs of the organisation.  The UK Corporate Governance Code (2010) (formerly the Combined Code) states that corporate governance is about what the board of a company does, including how it sets the values of the company: “the board should set the company’s values and standards and ensure that its obligations to its shareholders and others are understood and met.”  The most common way that a large corporate sets out the company’s values and standards is through an ethics policy and/or a code of ethics, which aims to govern employees’ day-to-day conduct.   Frameworks for dealing with a conflict of interest are normally included in such guidance documents.

It is without doubt that guidance for employees is necessary, especially since the definition of a conflict of interest will vary with context.  Thus, providing a framework based on the company’s ethical values for employees to refer to, will help to ensure consistency in employee’s decision-making across the organisation when it comes to dealing with a conflict of interest.  And it goes without saying that training for staff on the framework (and the company’s values) is required to help them identify, manage, and resolve potential conflicts of interest.  This should be coupled with a broader awareness of why it is important to manage those conflicts. 

But no framework and no amount of training can cover every potential conflict of interest or guarantee that every employee will make the ‘right’ decision, by the company’s standards.  Are conflicts of interest not moral dilemmas?  And are people’s morals not inherently different?          

There is often an expectation by senior management that many conflicts of interest are avoidable; an expectation that is not shared by experience. Conflicts of interest are not necessarily of our own creation. It could be argued that in fact the conflicts that employees encounter are the product of the structures implemented at a more senior level.  Normal human relationships can be transformed by individuals’ professional roles into a source of conflict, regardless of whether they do in fact influence the individual, or just create the perception of influence.   But we are very often influenced, and driven to act in certain ways, unconsciously. 

Having a framework to govern employees behaviour when it comes to conflict of interests shouldn’t stifle people’s ability to make their own decisions.  But trusting the ethical judgement of employees may not fit well with effective governance of a company.  The middle ground is hard to find. Perhaps conflicts of interest is such a moral maze that it cannot be governed with a framework? A supportive and open culture, which encourages employees to understand how their relationships may be perceived so that they may be transparent about their interests, may be the middle ground we are striving for.

Judith is Senior Researcher at the Institute of Business Ethics where she researches and writes on best practice on a range of business ethics topics, advises companies on embedding ethics in their organisations, and regularly engages in training and public speaking to raise awareness of the subject

(Editor’s note: Jeff Kaplan is on vacation until July 23, so there will be no additional posts on the COI Blog until after that, and any comments received about this or other pieces won’t be posted until then.)

 

The Two Types of Conflict of Interest Dilemmas

By Marty Taylor

The Institute for Global Ethics has spent the last 20+ years providing tools for people to negotiate right-versus-right (RvR) ethical dilemmas. In IGE’s world, some ethical dilemmas are conflicts of interest (COIs). We call other COIs right-versus-wrong (RvW) moral temptations. How do we distinguish between the two? The best litmus test is the personal advantage test. If the decision-maker’s COI requires a choice between serving others and serving self, especially in a venal way that disadvantages others, it is likely to be an RvW moral temptation. Let’s examine the following two examples.

You make the final decisions in procurement for your enterprise. Two suppliers competing to win a contract offer nearly equal products at the same price. Deciding between the two is difficult. One of the suppliers offers an attractive intern opportunity to your college-age daughter. He says it’s a coincidence. It seems like a “win-win,” and a “no brainer”, because no one is hurt by the offer and your daughter would benefit. However, your decision would compromise the procurement process, and your daughter might win a prized internship unfairly because of the contract, not because of merit.

Your ethics officer would see this situation as a COI—or perhaps the appearance of a COI—and require that the supplier offering the internship be removed from the selection process—the optics are bad. Moreover, accepting the internship would be inappropriate with any current or future supplier. It’s a RvW moral temptation. Your family benefits and your company’s stakeholders might get a rotten deal.

Now, a different situation—you’re still a procurement officer. Your colleague who does site visits has become sick just before a critical visit to a contract relationship you manage. As a willing team player, you’re expected to take over the site visit. But this weekend you are also expected to support your high-school son’s efforts in a regional music competition. Your wife is house-bound with her elderly parent. With more notice, she could have arranged care for her parent. You can miss the competition, leaving your son alone, or you can cancel the site visit which will disturb the supplier and your department. This is a RvR ethical dilemma—an individual (your son) versus community (your company) dilemma. Both choices are right, but there’s no position that can achieve both needs. It is also a COI—the needs of your son conflict with the needs of your job and there’s no clear resolution.

Our Ethical Fitness® process helps people to analyze and resolve their dilemmas. But they are still dilemmas! Conflicts of interest are frequently ethical dilemmas, but the negative connotation for COIs comes from the unfortunate choices people make to achieve selfish ends at another’s expense.

Marty Taylor is the Director of the Center for Corporate Ethics (a division of the Institute for Global Ethics), a former longtime employee of Eastman Kodak Company, and author of the bestseller, The Joy of Photography. He speaks and writes about ethics in business whenever possible. He can be reached at marty@globalethics.org