What is a conflict of interest and how to avoid it in the company

Conflict of interest, i.e. the so-called dual loyalty, stands against maintaining the necessary objectivity when it is necessary. How can such situations be prevented in business and how the data visualisation of capital-personal relations can help?

Conflict of interest

Conflict of interest — what is it?

A conflict of interest is a business phenomenon that most often occurs when a person (e.g. an employee of Company X) commissions a transaction or activity that is not necessarily in the best interest of the company for which they work, but is somehow in their interest. In other words, their interests conflict with the interests of their employer. For example, they order materials from a printing house in which they own shares or is owned by their wife or husband.

We speak of a conflict of interest when one of the parties to the transaction can not, in its judgments, maintain the objectivity necessary in business situations, because they have a business relationship with another entity(e.g. has shares in it, it is a their family company, they will have some extra profits from it or someone from their relatives will earn from it), but not only.

Conflicts of interest are present not only in business, but also in political and private spheres. We can distinguish at least a few personal relations through which conflicts of interest arise. Examples of those kind of inaproppriate bindings include:

• property relations;
• family relations;
• employment relations;
• realtions between entities or persons performing management, control, supervisory or joint functions in enterprises (one person performs several functions).

Conflict of interest in the workplace — 10 examples

1. Making a purchase or making a business decision to grow the business for the benefit of the business in which you have an interest.
2. The employee has shares in the company that provides services to your company.
3. The employee runs a competitive business or plans to start such business.
4. Employing a relative who is not qualified to provide services needed by the company or withholding information about the relationship of the employed person with the one the company is planning to employ.
5. Providing paid services to the client of the company or provider of services / goods in their spare time.
6. Additional part-time work for a company that provides a competitive service or has a similar product.
7. Sharing confidential information with competitors and taking advantage of it.
8. Providing work for a competitive entity with the use of the company’s equipment.
9. Providing services such as sale of materials or rental of equipment to a competitor.
10. The same director or shareholder of two competing companies.

Conflict of interest and the principles of disinterestedness and impartiality

A conflict of interest breaks two important ethical principles:

1. the principle of selflessness, according to which you shouldntt be guided by personal interests (do not expect benefits for yourself or your family members and friends from a business transaction)
2. and with the principle of impartiality, according to which all matters should be resolved irrespective of personal preferences or views (matters should be settled using the principles of equal treatment and fair competition).

How to find who is related with whom and detect a conflict of interest?

Detecting a conflict of interest is not a simple task, but there are some specific verification tools that can help. One of them is checking personal and capital connections in business registers. It is possible to do it on your own, by verifying each employee and business person (in which companies they have shares or hold important management position), or use business intelligence data platforms that show the connections of companies and people in a graphic form. Their advantage is interactivity — by clicking on a given person or company, you will go to a more detailed profile. In this way, you can verify the relationships of companies and people on many levels.

Here are some examples from RegTech data platforms our company has built for Polish business market:

Example 1

Example 2

Example 3

Natural persons are marked in green and companies are marked in blue. As you have noticed, the exact amount of personal-capital connections depends on the size of a company.

What to do when a conflict of interest arises?

Due to their complexity, conflicts of interest are one of the key issues in business ethics. There is no way to avoid all conflicts of interest as they accompany virtually all human activities. Fortunately, we can list several ways to deal with this situation. Below are some examples of activities:

• informing people and companies that may be affected by the conflict of interest that it has been disclosed and does not constitute a threat;
• hiring an independent auditor who will examine the degree of risk of a conflict of interest;
• entrusting the decision-making process regarding a transaction in which persons who are in a conflict of interest are involved, the so-called third parties;
• restricting access to confidential information to persons with a conflict of interest (if possible);
• removing from the project the person affected by the conflict of interest — if this is not possible, then it remains to convince him to break the links generating the conflict;
• transferring the person with the conflict of interest to another department of the company;
• in serious cases where the above actions cannot be applied, you may have to abandon the transaction.

You might also like:

European business registers — comparison of registry data on foreign companies

https://medium.com/transparent-data-eng/how-to-meet-aml-obligations-the-best-api-for-sanctions-lists-and-pep-verification-1f3799a2c275