Waiving conflicts of interest: whether, when, how

A well-trod hypothetical case.

The head of a company’s regional office is putting on a reception for its customers. She believes that the best vendor (in terms of price and quality) is a caterer owned by her brother. Would it be a conflict of interest (“COI”) to give him the business?

Two approaches to COIs

Certain areas of law and ethics lend themselves to a black-and-white enforcement approach. These are many of these areas – e.g., fraud, corruption and antitrust laws. But conflict of interest (“COI”) is generally not one of them.

That is, while some organizations bar COIs in all instances many others opt for allowing COIs to exist where appropriate.

What do we mean by appropriate?

A company should consider requiring that a COI waiver (whether it is called waiver or something else) be allowed only where doing so would clearly be in the best interest of the company.

The use of “clearly” is intended to require a showing greater than a mere preponderance of the relevant facts. Of course, it is not as high a standard as “beyond a reasonable doubt,” which, in my view, would be widely seen as overkill in this setting.

But it is still a high standard and presumably would require rejection of any proposed COI where there was a lack of genuine clarity on this issue.  Indeed, given that COI problems often involve lack of clarity, the use of the word “clearly” in a COI policy should itself be helpful.

Whose best interest?

The mandate concerning “best interest of the company” should be read broadly. It requires more than an absence of corruption or other outright misconduct.

Rather, it also specifies consideration of how the COI at issue could impact the ethical culture of the company.    That is, the process should assess how employees would likely be affected if the vendor was hired. The same is true of the impact on the vendor’s competitors.

Procedural component

Finally, there is the procedural component.

In brief, that those deciding whether to allow a COI are not themselves conflicted. (This means you regional officer.)

This is a complex topic that will be the subject for another post.

The company should also audit and monitor COI compliance.