“Organizational Justice” and Conflicts of Interest

According to research conducted by the Corporate Executive Board (the “CEB”) of about 600,000 employees of more than 140 companies, one of the most important steps to promoting compliance is maintaining “organizational justice.”  The CEB notes: “A firm’s culture has organizational justice when employees agree that 1) their firm responds quickly and consistently to proven unethical behavior and 2) that unethical behavior is not tolerated in their department.”

What does this have to do with conflicts of interest?

In many organizations COIs constitute one of the most common – and commonly observed – types of wrongdoing.  And, I believe that  – more so than with most types of C&E violations – when COIs that are harmful to a company are permitted to exist, that undermines the sense of justice within the organization.

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.  This  impact has been brought home to me in various client engagements, such as recently hearing at one company how employees “monitor” each other regarding COIs or from a focus group in another company where employees questioned the organization’s commitment to C&E generally based upon its handling of certain COIs.

Given the outsized impact that COIs can have on the overall efficacy of a company’s C&E program, addressing them effectively should be a top priority for companies.  That is, the danger of poor COI mitigation is not only the immediate impact  from individual COIs (e.g., distorted procurement or hiring decisions) but a broader risk to the entire program.