ENTREPRENEURSHIP / NOV. 01, 2014
version 4, draft 4

How to Avoid Conflict of Interest When Launching a Business

Avoid Conflict of Interest When Launching a Business
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It happens all the time, sometimes under the radar, and sometimes out in the open. Those involved typically profess innocence or ignorance when it’s brought to their attention.

A conflict of interest is at best unprofessional and unscrupulous, and at worst, illegal. Anytime someone uses their position (political, professional, familial, or otherwise) to influence or motivate a decision that results in professional, financial, or personal benefit for them, it’s a conflict of interest. And in business, you want to avoid them.

If you’re put in a position with a clear conflict of interest, it’s your responsibility to highlight it. Point it out. Exclude yourself from the decision making process if possible. Financial writers and analysts will include a “full disclosure” statement if they, for example, own stock in a company that they recommend. If they don’t, they could be accused of using one position - that of a trusted financial commentator - to bring financial gain to themselves, and that would do irreparable damage to their reputation. On all fronts, conflicts of interest are best avoided completely, and put out in the open when that’s not entirely possible. Never try and keep it under wraps.

Avoiding Conflicts in Business

The best way to avoid conflicts of interest when launching your business is to consider them from the very beginning. What conflicts exist (if any)? A business needs to have a written, detailed, and explicit policy relating to this issue.

From a launching or hiring viewpoint, always hire the best candidate for any position in your business. Avoid involving those holding political office or positions in competing companies (as board members of advisors). Make it easy to avoid conflicts by taking pro-active steps from day one.

Step 1: Form a Policy Committee

A new business needs many policies and documents in place. Conflicts of interest is just one of many, but it falls under the umbrella of “better to have and not need than vice versa”. Create a committee to evaluate and draft the policy as early in your business launch as possible.

Step 2: Brainstorm a List of Scenarios

Once your committee has been identified, they next need to brainstorm a list of potential situations that either could be seen or are conflicts of interest within your organization. Include the usual suspects - hiring unqualified family members, influencing a contract towards a friend’s company - and then as many concrete scenarios within your particular business as can be uncovered. Does anyone have an interest in rival companies? Does anyone hold or aspire to political positions that may conflict with the business objectives? Are any supervisors/managers/admin personnel dating or married to employees below them in the corporate structure? These all need to be identified and included in the policy draft (not specifically using names, but as a potential conflict situation).

Examples of conflicts of interest include:

·         Office dating (especially where one is in a position to benefit the other)

·         Nepotism (hiring or promoting family members when they are not the best candidate)

·         Employees working (part-time, freelance) for competing organizations

·         Employees using their influence or vote to steer a contract or account to one organization over another that then provides them with some sort of benefit (financial, political, personal, professional, or otherwise)

·         Employees providing discounts in exchange for gifts (or bribes)

This is by no means an exhaustive list, and it is the job of your policy committee to explicitly identify as many as possible and include it in your formal policy document.

Step 3: Define the Steps and Instructions

Once a comprehensive list exists, the document should also include clear and detailed instructions on how to a) bring complaints and accusations of a conflict to the attention of the committee, board, or individual in charge (how is the policy enforced? Define this in the policy itself), and b) outline the procedure for investigating those accusations and complaints.

How does an employee safely report the infraction? What happens after someone does?

Step 4: Explicitly State Possible Consequences

Once your document has a detailed list of scenarios, outlines the various procedures, and identifies the person or group in charge of investigations and executing the policy, it must also include the consequences of violation. Again, explicit and specific is required here. Consequences may range from verbal warnings, to formal reprimands, to termination if an employee is found to have violated the policy. Connect scenarios and consequences whenever possible, as there is no one solution to every conflict of interest. A manager dating someone in their department and showing favouritism in scheduling might receive a formal reprimand, note in their employment record, and/or demotion (depending on what appears in the policy), whereas a board member that steered a major contract to a company that they secretly own shares in might face termination.

Your policy needs to be explicit.

A conflict of interest may occur in any business, so make sure you have a detailed policy in place to deal with it. Some are unintentional. Others are deliberate. Either way, in order to protect yourself, your business, and your employees, you need that document in place, and it needs to be strictly enforced and maintained.

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