Best Practices for Employers: Conflicts of Interest

Kelly J. Todd
Managing Member
June 1, 2017

In my last blog, I discussed why corruption in the workplace always requires a conflict of interest. Conflicts of interest arise when employees have interests that may make it difficult to maintain one’s duty of loyalty to their company in an objective and effective manner. Unfortunately, conflicts of interest are unavoidable. They exist at all levels within an organization, and are more inevitable the higher you climb the corporate ladder, as well-connected, accomplished individuals tend to hold leadership positions. Quashing all conflicts of interest within businesses would be difficult to conduct; therefore, it is important to know how to reduce the risks inherent in conflicts of interest.

First, it is crucial to train employees on their responsibility of loyalty. Often, employees are simply unaware how outside interests, including friends and personal relationships, could pose a conflict. An additional challenge with conflicts is losing objectivity – as humans, we are often far less objective that we are willing to admit, which is why employees need to be trained on how to recognize the threat of conflicts. It would be wise to give employees examples of what qualifies as a conflict – for instance, is accepting a gift or being entertained acceptable? Or a conflict? Finally, during training help your employees understand that conflicts of interest are not necessarily bad or inappropriate, but they must be disclosed.

In the wake of a flood of accounting scandals, such as the Enron scandal, many companies adopted conflict of interest policies. Your company’s policy, which should encourage disclosure of conflicts as they arise, must be thoroughly reviewed in your employee training. However, your policy should not be forgotten after training – require annual certification that your employees have read the policy and attested they have either reported all known conflicts, or reported they are not aware of any conflicts. In addition, consider an annual questionnaire that asks employees to respond to detailed questions about common scenarios that could give rise to a conflict.

While training is a large, and important, aspect of conflicts of interest, there is another notable component: detection. It’s often said that relationships are hard to discover, but in reality, conflicts almost always leave a footprint that can be detected with electronic data mining techniques. Rather than detecting, it’s more about identifying relationships. Publicly available information, such as social media, business records and public databases can be mined for relationships, and it is wise to mine through emails, accounting records, and employee and vendor lists to identify relationships. For example, data matches can be performed between employee and vendor data files to identify relationships by mining for matching addresses, tax identification numbers, bank accounts or phone numbers.  Also consider vetting incoming mail for irregular contact between employees and vendors.

If you have questions about conflicts of interest, or want to learn more about our services and our team, please contact us.