Gauging the Gouging

It's important to recognize, and be diligent about conflicts of interest

For the past few years, our local world has been abuzz about the issue of perceived conflict of interest in government agencies.

The issue is complicated, convoluted, hard for the general public to understand and hard to track.

Nevertheless, we have to recognize conflicts of interest exist at every level of life.

The challenge for each of us is to develop a deep understanding of what defines conflict of interest and how to avoid it, both personally and professionally.

Simply put, a conflict of interest can occur when someone's personal interest appears to affect their judgment or behaviour, which in turn causes the individual to lean toward making a decision that is more or less "self-centred." In other words, at the end of their decision making, the individual will have derived some sort of personal gain from their decision and to the detriment of the other party.

These types of conflicts of interest are commonly found in various organizations ranging from accounting and banking firms, to the mutual fund and insurance industries, medicine, pharmaceuticals and government. The issue of conflict of interest can be as simple as a publishing company changing the cover of formerly popular book and selling it as "new" and/or announcing a newly revised edition of a school textbook that truthfully only represents a rejigging of the chapters. Perhaps you will recall the situation where several book publishing companies were accused of price fixing the newly popular ebooks.

On the other hand, we have well-known stories of how accounting firms such as the former Arthur Anderson earned fees for both consulting and auditing for the same clients. As you can imagine, it is difficult to be objective on the audit side when your opinion might cause you to lose thousands of dollars on the consulting side of the business. And that's why steps were taken to separate these two lines of business within any consulting/accounting firm. At the same time, there have also been known incidents of corporate chief executive officers being able to manipulate their personal compensation because they are also responsible for setting pay for the board members, from which in turn, the compensation committee is selected.

However, what about conflicts of interest at the personal, family level? Let's say a distant cousin inquired about your frequent travels and then asked for advice on where to spend their one-month vacation. You suggest that the weather is great in Phoenix and you describe it as an easy city to get around. AND, you just happen to have a rental condo in that city. You make a great pitch, offer the cousin a small discount and boom, you now have your condo rented. While this seems innocent enough, it does represent a basic level of conflict of interest. While apparently well-meaning, you didn't disclose your ownership until well into the conversation. You deliberately steered the cousin to your condo and you will gain financially from his or her stay.

Did you even think about a potential conflict of interest? My bet is that you will say "no" to the question. And, I believe this is what happens to most people in common, simple situations. You don't realize how your behaviour actually represents a conflict of interest. In fact, you probably thought you were doing your cousin a favour.

However, conflicts of interest by individuals serving on not-for-profit boards, corporations and in government related agencies is a different matter. These representatives owe their loyalty to the organization, to the public and to their key business stakeholders. They need to put their personal, professional and financial considerations aside so these interests do not interfere with any organizational decision making.

Examples of organizational conflicts of interest includes such things as hiring close relatives based on your relationship rather than qualifications, using confidential organizational information to your own advantage, or accepting financial, travel or other costly gifts from vendors who wish to influence your decisions. As well, in some cases, an individual may be engaged in outside employment or a consulting opportunity where the individual's personal interests appear to be in conflict especially because they can use their new information to influence other decisions.

Most organizations today now have a conflict of interest policy and they not only train their members as well as management to understand their policy but work hard to eliminate and exclude relationships and activities that may be problematic. These policies help organizations create transparency and provide guidelines for individuals to ensure they engage in careful deliberation in situations where perceived conflicts may arise.

Yet, it is well known an organization can have all the written policies in the world but it is people who make things work or not. While most of our readers are not professional investigators who can weave through the multiple complexities found in most large scale conflict of interest scenarios, there are at least some basic questions that can be asked to determine if a conflict of interest exists. These include the following:

  1. Does an individual official have an interest in a property and/or investment in the situation under discussion?
  2. Will a decision affect the economic interests of the individual versus the organization?
  3. Is there a direct or indirect financial interest for an individual in a specific contract under discussion?
  4. Is an individual formally engaged with the party making a sales pitch for your decision?
  5. Has a vendor making a pitch made a campaign contribution to an elected officer or board member?
  6. Is the representative receiving personal gifts and/or discounts from a vendor that might influence decision making?
  7. Has a representative of the organization used insider information from their position for personal gain?
  8. Is a representative of the organization also serving in another role that overlaps jurisdictions and/or would cause divided loyalties?
  9. Are there close relationship ties between various parties that would preclude an objective judgment or decision?
  10. Are representatives with conflicts of interest disclosing their conflicts and withdrawing themselves from decision making at the appropriate times?
  11. Are the minutes of meetings documenting issues of conflict of interest and noting when an individual removes him/herself from the decision making process?

While these questions are not comprehensive, they should at least help you to analyze both your own situations as well as those that might be found if you are a member of a not-for-profit board and/or are engaged at the corporate level in government and/or business. Conflict of interest situations are all around us and many result in harmful effects, both human and financial.

Not only that, as conflict of interest situations become known, they erode the public's confidence and faith in our institutions.

Therefore, it is the duty of every individual, no matter what level of an organization you are involved with, to be more diligent in managing their own potential conflicts of interest. Keep in mind that perception is reality in the minds of many.

Source: Conflict of Interest, California Attorney General's Office, 2010

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