Conflict of Interest refers to a situation where an individual’s personal interests conflicts with their duties and responsibilities at the workplace. In simpler words, it is a situation where a person’s personal interests conflicts with their professional interests. In most cases, conflict of interest involves a contravention of the individual’s duties and loyalty to their firm.
For instance, the corporate members who are a part of the board of directors of a company owe their professional responsibilities of loyalty and administration. However, if they take advantage of certain business opportunities at a personal level, it might be detrimental to the company and might also lead to a conflict of interests.
In the context of business, conflict of interest might prevent an individual from participating in some specific corporate level decisions. At the same time, it might also lead to some major legal consequences.
When do conflicts of interests occur?
Following are few common conflicts of interests that are observed in most firms.
Self-dealing – This situation is observed when a high-level officer of a firm joins transaction with a competitor firm for personal interest. It is to be noted that this transaction might be detrimental to his company.
Receiving gifts – According to some business laws, officers of a firm should not receive gifts (either tangible or non-tangible) from people with whom their firm is involved in the business.
Employment conflicts – If a corporate official is employed by multiple firms, their interests in one firm cannot collide with that of the other firms.
Ethics of Confidentiality – A corporate official cannot use his company’s confidential information for personal interest. This is specifically relevant to the information associated with trade secrets, security violation and insider trading.
Nepotism – This refers to a conflict of interest that occurs when a child, partner, relative or acquaintance is hired in a firm based on their relationship with a corporate officer. This conflict might also involve an unethical increase in salaries or additional perks.
Handling conflicts of interests under business laws
It is best to resolve a conflict of interest as soon as it is identified. If the situation is internally resolved by the firm, it might not lead to severe legal consequences. Following are few methods to handle conflicts of interest under business laws.
Disclosure agreement – The director or the corporate official’s conflict of interest should be clearly disclosed even before they are chosen to serve on the board or take part in the necessary decision-making process. This will also help the other members of the board to perceive the individual’s complete professional background.
Recuse – If an individual does not have any conflict of interest, he can always recuse or withdraw from his responsibilities. He might refrain himself from participating in the decision-making process might also limit his participation to the activities where there’s no specific conflict.
Complex conflicts of interests might often lead to legal consequences. In such situations, a firm can consult a business lawyer who will provide them the necessary advice to handle and resolve the issue.