Avoiding conflicts of interest in a corporate or organizational setting is every employee’s responsibility—and not just a concern for executives. The risk is real, and the consequences for allowing an incident to happen can be severe.
The mere appearance of a conflict of interest is often just as damaging as a real violation. The credibility, integrity, and reputation of the organization can be harmed (perhaps irreparably), which will sting even more if employees aren’t quite sure what they did wrong.
A dynamic compliance training program teaches employees both the basics and the finer points of what constitutes a conflict of interest, how to avoid them, and how to proceed if they recognize one. A smart approach to this education can reduce risk and potentially save an organization from financial loss, regulatory action, and public embarrassment.
Conflicts of Interest, Defined
On an employee level, a conflict of interest can arise when any of the following occurs:
- Personal interests or relationships compete with the best interests of the organization.
- Professional judgment is compromised or biased.
- The ability to make impartial business decisions becomes hindered.
Some conflicts of interest are obvious, but others can be quite subtle—hence the need for good training. Examples of conflicts include:
- Outside employment: Is an employee working a second job or doing contract work that is in competition with their current role? Or is the employee using company resources and time for another job? True Office Learning data, amassed from millions of users who’ve taken our courses, shows learners perform relatively poorly on outside employment content compared to other conflict of interest concepts.
- Outside investments: Does the employee have a financial stake in a company that is in opposition or competition to their own? Or do an employee’s work decisions affect an outside investment—for example, owning a stake of a vendor that’s headed for a big contract with the employee’s organization?
- Courtesies: Does an employee show preferential treatment to certain third parties in decisions that affect both the organization and the third party? This can also apply in reverse, with third parties bending over backward to impress an employee and influence decisions. The improper giving and receiving of gifts often fall under this conflict of interest.
- Personal relationships: Is someone getting preferential treatment because of their relationship with an employee? If a personal relationship does exist, is proper protocol being followed to ensure that relationship isn’t factoring into business decisions? This can apply to hiring, vendor contracts, investments, and a range of other concerns.
Real Risks, Real Consequences
The best strategy with conflicts of interest is to prevent them from occurring in the first place. Unfortunately, such situations sometimes can’t be avoided and must be instead resolved, disclosed, or managed. Failure to do so puts the organization at greater risk, and the consequences can be severe:
- Regulatory penalties: Not all conflicts of interest are illegal, but when they run afoul of laws and rules in regulated industries—they can result in fines, litigation, increased scrutiny, and, in egregious cases, prosecution.
- Lawsuits: When conflicts of interest hurt third parties or breach contracts, companies may be sued for damages.
- Legal fees: Whether a conflict of interest is illegal or results in litigation, the resulting legal fees are expensive. Even if no action is taken, simply dealing with the aftermath can be costly.
- Reputational damage: The mere appearance of impropriety can hurt an organization. Customers may flee, other companies may be reluctant to continue doing business with the offending organization, and top talent may think twice before applying for a job.
- Disciplinary action: Individually, employees can be disciplined or fired for engaging in, not recognizing, or not responding to a conflict of interest—even if there was no malicious intent behind the conflict or knowledge that it was occurring.
- Lost profits: The bottom line is never far away from conflict-of-interest concerns. Incidents that result in these consequences ultimately cut into profit margins and cause investors to lose faith in the organization.
- Decision-making biases: Generally, conflicts can lead people to develop biases that can affect significant decisions made within the company and that affect different teams.
Why Training Matters
Handling a real, apparent, or potential conflict of interest involves two key steps:
- Identifying and disclosing the conflict
- Deciding what action, if any, is necessary to avoid or mitigate the effects of the conflict
However, conflict of interest concepts are complex, and employees may need additional information about the nuances and subtleties of these two steps. Training becomes a critical resource, helping employees to:
- Recognize conflicts of interest
- Avoid conflicts whenever possible
- Navigate conflicts appropriately
- Report conflicts to the correct internal resource
To best achieve these objectives, training must go beyond just throwing information at the employee and hoping they learn something. Quality training uses interactive scenarios that immerse users in relevant conflict-of-interest situations they might encounter in their everyday roles. The best platforms build muscle memory while yielding rich data that shows where employees are excelling and where they need more learning.
Great training that teaches employees how to identify and mitigate conflicts of interest protects the organization from heightened regulatory scrutiny, safeguards the brand, creates public trust, and promotes the company as a responsible corporate citizen. Recognizing and reporting potential conflicts of interest also protects the bottom line—which should underscore why training is so critical to the modern business.