Inherent conflicts of interest and behavioral ethics

At his trial for Libor rigging, evidence was introduced last week that former trader Tom Hayes had told the Serious Frauds Office that “many of the people responsible for submitting panel banks’ Libor rates also traded products linked to the rate, creating an inherent conflict of interest” and that “’[n]ot even Mother Teresa wouldn’t manipulate Libor if she was trading it,…’”

While obviously somewhat self-serving, this colorful bit of analysis still  helps to underscore the overarching behavioral ethics point that to reduce the risk of ethical transgression often one cannot always count on the characters of those involved.  Rather, the situation will play the decisive role.

Inherent COIs are an instance of that. Granted, they are just one of many such types, but they may also be more common than most others, and hence worth further study.

And beyond an area of interest to behavioral ethicist scholars, seeing some COIs as being inherent (or near to inherent) can be useful to others, too, such as:

– C&E professionals, who should consider the category of inherent COIs in their risk assessments.

– Senior managers and directors, who should – as part of their C&E program oversight – make sure that nothing their company is doing or contemplating doing falls into (or anywhere near) this category of risk.

– Enforcement personnel, who often can find good fishing in the inherent COI waters.

– Individual business people, who – in making career decisions – should steer clear of jobs that could involve inherent conflicts of interest.

On this last point, Mr. Hayes would surely agree.

And on the point about the role of enforcement personnel, in my view the “fishing” shouldn’t be limited to those individuals who succumbed to the pull of the inherent COIs, but should also include the senior managers and directors who allowed the COIs to exist in their respective organizations. (For further reading on how a behavioral understanding of ethics and compliance should inform our approach to liability see this earlier post.)

(Thanks to Scott Killingsworth of the Bryan Cave law firm for letting me know about this story.)