In a previous article we have made an introduction to Compliance. There we mentioned, among the indispensable elements that must be included in an Integrity Program, the “guidelines on how to deal with a conflict of interest”.

In this opportunity, we will go deeper into this topic, which we understand has an enormous relevance in business management, if the objective is to strengthen the culture of compliance within the organization.

When is there a conflict of interest?

Considering the scope of responsibility and tasks performed by certain officers within an organization, it is common for them to face situations in which a conflict of interest may arise on a day-to-day basis.

This is the one that originates in the tension between the “personal interests” of the officer - which can be either an employee, or a supplier or strategic partner representing the company in a given business situation - and the “business interests” of the employer and/or the entity represented.

Now, let us define what is meant by “conflict of interest”. This would occur when a person loses objectivity in making a business decision, affecting or potentially affecting the interests of the company he/she is representing. The last part of the definition is important, since the conflict of interest exists anyway, regardless of whether or not the interests of the company are affected. In other words, it is not necessary the existence of a detriment to the organization for the assumption defined here to be configured.

This is so, since we must remember that the basis of this issue lies in the culture of compliance that exists within the company. It is a question of transparency in making business decisions, which should not be tainted by personal interests, or that may give rise to any questioning - by the company or by third parties - even when there is no concrete damage. Let us remember that one of the bastions that the Integrity Program seeks to protect is the “reputation of the company”. This could be affected if a case of conflict of interest becomes public. That is why companies work hard to raise awareness among their employees to prevent this from happening - without any validation or verification by the company.

What tools can be implemented for early detection?

Since it is an impossible task to list all the potential “conflict of interest” situations that company representatives may face, the most commonly used mechanism for the early detection of these situations is usually “prior consultation”. This consists of generating the custom of officials to raise for consideration by the company how to resolve a potential conflict of interest. However, this mechanism depends on the willingness of the person doing the consultation in order to be initiated. Without this impulse, which may not be generated due to lack of knowledge of the tool, lack of training, or a conscious desire to avoid the response, this mechanism loses its effectiveness.

That is why, additionally, and linking this topic to another tool that is usually included in Integrity Programs - such as integrity checks (also called - depending on whether employees or third parties are involved, as “...”) - the integrity check is an important tool in the Integrity Program.Know your Employee” or  “Third Party Due Dilligence” ) - it is common that at certain times (either at the beginning of the relationship that binds them or on an annual basis, for example) there are instances of preventive verification of potential conflicts of interest. These are proactively promoted by the organization, and must be answered by the employees consulted, and will eventually serve as a concrete background to be able to either analyze the consequences in the event that a conflict has indeed arisen, or to be able to account for the fact that the company has adequate prevention mechanisms, which were violated in a particular case.

In this regard, it is common that at the beginning of the employment relationship the employer formally asks - through a form created for such purpose - if the new employee has any relationship with public officials - in areas with which the company interacts -, or any type of relationship with clients or suppliers, shareholdings in companies that may be competitors of the employer, etc. It is important to mention that, in the hypothesis where a conflict of interest may exist, this does not imply - if the procedures established by the business organization are followed - a breach. That is why it is essential to train, raise awareness and implement preventive actions, precisely so that all those measures tending to “disarticulate” the conflict of interest can be taken.

Let's take an example: an officer of the organization must hire a supplier. According to the company's procedure for moving forward with his choice, this officer has the final say in the decision. However, in one of the three companies that have offered their quotations, a brother of this officer works. The latter, fully aware of the policies in force, but also aware that the company where his brother works is a strong candidate to be awarded the contract, has brought this information to the attention of the organization, as it could represent a conflict of interest. Consequently, the company decides to take as valid the quotation of the supplier in question, but - in order to avoid that the decision falls on a family member and that objectivity is altered - delegates to another officer the final decision of who to hire. In this way, applying the current procedure of prior consultation, and generating a mechanism ad hoc which modifies - in the specific case - the company's authorization matrix, any conflict of interest in the decision-making process is avoided, regardless of the outcome of the award. If, on the other hand, the official in question had not made the prior consultation, nor obtained the company's validation, and the supplier chosen had been where his brother works - even if this was the best supplier for the service required by the company - the decision-making process could be qualified as a breach of the “conflict of interest” policy.

What procedure should be followed when a conflict of interest is detected?

In this case, an internal investigation should be initiated in order to gather all related information that will allow a decision to be made. The assumption is that, upon detecting a case of conflict of interest, the officer involved failed to comply with the prior consultation mechanism - obviously to the extent it exists -. In other words, it is based on a serious misconduct on the part of the official, which could merit the application of a sanction. In order to determine the level of the sanction, it is necessary to consider whether or not there was any damage to the company, be it economic or damage to corporate reputation.