How to Deal with a Conflict of Interest in Business

by Katie Sawyer, 9 minutes read
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How to Deal with a Conflict of Interest in Business

What is a conflict of interest?

A conflict of interest occurs when a business or an individual becomes untrustworthy as a result of an inconsistency between professional and personal affairs. This type of conflict happens when someone has a vested interest, for example status, knowledge or money, which leads to questions about their partiality in relation to making decisions.

Conflict of interests can arise in any business, irrespective of the size. Anyone can become compromised, as a result of personal interests that are at odds with their business. It is important to deal with the conflict of interest in your business to prevent legal problems and to avoid accusations of biased decision-making.

As a business owner, you may find it challenging to deal with a conflict of interest as there are many ways that individuals can compromise their professional positions. To ensure that there is a way for your employees to message each other regarding any issues they’re having in the workplace, use an employee scheduling platform that allows all employees to communicate with one another whenever they need to. In fact, if you’re interested in using the same software trusted by Nike, Amazon, and Ace Hardware, then click here to Start your free trial

Types and examples of conflict of interests

Below is a list of common types of conflict of interests that you should be aware of:

This conflict of interest happens when individuals work for another business during your business working hours. Some examples of part-time jobs creating conflict of interests include:

  • Employees who operate an online business on the side and carry out their business activities on their laptop or smartphone when they should be working for you.
  • Employees who provide consultancy services, take phone calls and answer emails while working for you.
  • Employees who leave your business early to get to another job.

How to Deal with a Conflict of Interest in Business

  • Business resources

Utilizing business resources for example, facilities or office equipment for personal gain is a conflict of interest. Using your position or influence to assist or promote an outside activity is also considered a business resource conflict of interest.

The following are examples of business resource conflict of interests:

  • The use of business equipment in an auto repair shop to work on a personal vehicle.

  • The use of the photocopier at work to make copies of a flyer to advertise a new part-time business.

  • An employee who advertises the projects they have worked on for your business to gain clients for their side business.

  • Gifts

Although very small gifts may be allowed, in general, gifts from customers, suppliers or competitors can represent a conflict of interest. This is especially the case where your business needs to make a decision in relation to the party who has given the gift.

How to Deal with a Conflict of Interest in Business

Examples of the kind of situations where gifts can result in a conflict of interest include:

  • One of your customers sends a $75 bottle of wine to all of your employees for the holidays.

  • You receive two Super Bowl tickets from a friend who works for a customer.

  • Your team gets an expensive gift basket from the drinks company that your bar uses as a supplier.

  • Hiring, promoting or supervising

Hiring, promoting and supervising close friends or family members result in a conflict of interest for your business.

The following are examples of scenarios where hiring, promoting and supervising employees become a conflict of interest:

  • Your Head of HR hired his son as a contractor to provide HR support to your international team.

  • One of your managers is a direct supervisor of their sister-in-law.

  • Your senior manager has recommended his wife for a promotion.

  • Personal relationships

Personal relationships should be avoided at work, especially if the relationship is between a senior and a junior member of staff.

  • Here are some examples of circumstances where personal relationships can cause a conflict of interest:

  • Dating a junior member of staff.

  • Entering into a relationship with a salesperson of a supplier.

  • Dating an employee of a competitor.

  • Personal discounts

Receiving personal discounts from service providers, customers or suppliers that other employees do not receive may be a conflict of interest.

The following are examples of circumstances where personal discounts may cause a conflict of interest for your business:

  • You need to buy bathroom tiles for your home and you mention this to a salesperson of a tiling vendor for your business. Subsequently, the salesperson offers you a discount on the tiles you want.

  • The owner of a construction company wants to expand his business and informs you that he will give you a 25% discount on construction work if you recommend him to your wife’s company.

  • Directing business

How to Deal with a Conflict of Interest in Business

This conflict of interest occurs when business is directed to suppliers that are owned or have a close connection to friends or family members of a business. These types of transactions are normally made outside of a company’s standard purchasing processes.

Here are some examples of situations where direct business transactions may create conflicts of interest:

  • Your Procurement Manager’s wife owns a florist and is hired to provide flowers for all of your business events.
  • A supply chain employee’s husband owns a brewery equipment business and is hired as the main equipment supplier to your brewery.
  • The only buyer at your company works directly with her sister’s wholesale company and decides which products are bought from the wholesaler.

There is a potential for conflict of interests when dealing with all stakeholders in your business. In order to effectively deal with conflict of interests, you need to create a clear policy that explains what is considered unethical behavior and how this behavior will be dealt with.

The following tips will help you to avoid and deal with the conflicts of interest in your business:

  • Determine who owns the conflict of interest policy.

You should delegate the drafting of the conflict of interest policy to one person or to one team. HR is normally in the best position to oversee the policy because they are aware of relevant employee-related legislation. Allocating the drafting of the conflict of interest policy to a specific individual or team will enable you to hold them accountable in relation to meeting milestones.

  • List who the conflict of interest policy applies to.

Your conflict of interest policy must be specific in relation to the individuals it applies to. List every category of individuals that is included in the policy for example, employees, management and contractors.

  • Provide types and examples of conflict of interests.

How to Deal with a Conflict of Interest in Business

Specify the actions that constitute a conflict of interest. Your policy should list different situations that will be considered to be a conflict of interest. The type of conflict of interest should be followed by an explanation as to why the behavior is unacceptable with practical examples. As well as providing detailed examples, include a provision that the list is not exhaustive and the spirit of the policy will be followed if a conflict of interest arises that is not listed.

  • Provide different methods for disclosure

Your conflict of interest policy should detail how employees should disclose potential conflicts of interests, such as financial interests or relationships. Reporting conflict of interests can be done via an online tool or on a written form. This section of the policy should also detail the consequences of non-disclosure.

  • Include a confidential reporting function

Your conflict of interest policy should make provisions for those who want to expose behavior that will adversely affect your business. Include at least two ways to report suspected conflict of interest issues. The person reporting the suspected behavior should have the right to anonymity and must also be free from any repercussions for speaking out.

  • Update the policy

How to Deal with a Conflict of Interest in Business

After the conflict of interest policy has been created and shared with staff, it should be constantly updated to reflect changes in your company’s position. You should include new types of conflict of interests that have come to your attention. Constantly updating your policy will show your team that you take this area of your business seriously.

  • Apply the policy in every situation

The policy must always be applied whenever there is a suspicion of a conflict of interest. This is in spite of whether or not the situation is regarded as a minor violation of the policy. Consistently applying your conflict of interest policy could prevent such behavior because employees will be aware that you will not turn a blind eye to any violation.

Developing a policy is just one way to deal with conflicts of interest in your business. Your leadership style should mirror what you want to replicate in your business. Therefore, you also need to avoid conflict of interests in your business dealings to ensure that your culture is one where employees will act with the highest level of integrity.

Here are some more practical ways to help your employees avoid conflict of interests:

Everyone in your business should receive training about conflict of interests. The training should include:

  • The definition of conflict of interests.

  • How conflict of interests negatively affect your business.

  • How to exercise good judgement both personally and professionally.

  • How to deal with conflict of interests.

  • Discuss the conflict of interest with the relevant parties

How to Deal with a Conflict of Interest in Business

If you believe that a business deal will lead to a conflict of interest, you need to discuss it with your management team. Discussing conflict of interests early enables your team to consider alternatives that will safeguard your business.

  • Avoid employing family or friends

This can be challenging especially if the company started out as a family business. Where only family members and friends helped you to grow your business, it can be hard to treat them the same as everyone else because you may feel obligated to give them special treatment. However, in the interest of fairness and for the survival of your business, you must notify your family and friends of the importance of being impartial when making business decisions.

  • Keep an eye out for relationships between employees

Some employers ban relationships between all colleagues, irrespective of seniority levels. However, this policy can result in those in a relationship being dishonest about their romance. You may want to consider limiting the conflict of interest that can result from a workplace relationship, as opposed to implementing a blanket ban. Generally, a spouse or partner should never directly supervise or manage an employee. An employee should not receive feedback from a partner or spouse for a performance review.

  • Encourage full disclosure from all workers

How to Deal with a Conflict of Interest in Business

It is likely that you will hire different classes of worker, for example statutory employees and contractors. Your contract of employment or commission of services should include a request for full disclosure of potential conflict of interests. You also need to make the contractor or employee aware that disclosing a conflict of interest does not automatically disqualify them from getting the job or the contract. Your knowledge of the conflict of interest will help you to prepare for any potential adverse effects.

  • Get professional help to deal with serious conflict of interests

There are some conflict of interests that have more serious implications than others. For example, if an employee discloses that they have been bullied by a co-worker who is the employer’s spouse. It would be very difficult for people to accept that the employer could remain impartial if they were to be involved in the investigation. In this instance, the employer should use the services of a neutral and professional business mediation service to resolve this issue.

In an interconnected world, it is nearly impossible to totally avoid conflict of interests in business. The key to dealing with conflicts of interest is to have a clear policy about the steps that should be followed to mitigate any damage. While some conflict of interests are inevitable, it is important to stress to your team that these types of situations should be avoided as much as possible.

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