What Are The Basics Of Conflicts Of Interest Management?



A conflict of interest occurs when an individual or organisation is involved in multiple interests, one of which could possibly corrupt motivation. Importantly, the presence of a conflict of interest is independent of the occurrence of impropriety. If conflicts are occurring all the time, why haven’t politicians, executives and boards got to grips with it yet?

Part of the problem is that executives and politicians do not identify their conflicts before the conflicted decision is made. In an article for the Compliance & Regulatory Journal on conflicts of interest, Greg Mullins wrote, “conflicts of interest nearly always arise when decisions are being made. This is the point at which the interests and/or duties are in conflict. Before the decision is made, there is the potential for the interests to conflict, but the actual conflict of interest does not yet exist.”

“The identification of potential conflicts of interest is important because it enables the conflicts of interest to be managed when they do arise ‘for real’. Identifying potential conflicts of interest is not always easy. It involves identifying the different interests a person has, and then considering possible situations in which one or more of these interests would conflict.” David Gonski, Chairman of Investec and a director on numerous boards, says he believes perceived conflicts of interest were easy to handle when everyone knew about them. “The greater danger is secrecy,” he said.

Challenges for GRC Professionals

Conflicts are particularly challenging for risk and compliance professionals, mostly because they involve people in the most powerful positions. Approaching an executive, cabinet minister or board member about their conflicts of interest is undoubtedly a delicate exercise. “They often see it, quite rightly, as intruding on their privacy, and it can have connotations of wrong doing,” Mullins wrote in his article.

“Further, in my experience, people often find it difficult to identify their own potential conflicts of interest and the situations in which the conflict could influence their decision making. It is generally easier for another person to see the potential conflicts that could arise than it is for the individual themselves.” Mullins provided a series of questions which may be asked to help navigate this tricky exercise. Speaking in broad terms, or providing examples of how conflicts arise, may also help in alerting executives to potential conflicts.

Conflicts - questions to ask

It can be helpful when talking to people about their own potential conflicts of interest to ask them a series of questions. For example:

  • Are you a shareholder?
  • Do you have performance-based pay and, if so, what are the measures?
  • Do you report to Boards, or are you a director of any subsidiaries where you are required to make decisions?
  • Do you have any delegations to make significant decisions that affect our customers, such as pricing, product standards, marketing and disclosure?

Even where you know the answer to the questions, asking the person may help to get them thinking about the potential for conflicts of interest.

*Source: Compliance & Regulatory Journal, ‘Conflicts of Interests – Back to Basics’, Greg Mullins. Editor’s Note: Greg Mullins’s Compliance & Regulatory Journal article, titled, ‘Conflicts of Interests – Back to Basics,’ and all Compliance & Regulatory Journal articles are available to all members at the GRC Institute website.

Compliance and risk training solutions by the GRC Institute

Companies should periodically review and update their policies, procedures and controls to reflect current approaches to managing conflict of interest. Compliance functions that manage individual conflicts of interest helps prevent reputational and financial damage in the future.

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