“Conflict of Interest” seems like something which only applies to big companies or public sector work. But there’s the possibility for conflicts of interest in any business, and it’s important to manage these to keep your business running smoothly and avoid potential legal difficulties.
What is a conflict of interest?
A conflict of interest is where someone is compromised by their personal interests or obligations conflicting with the responsibilities of their job or business. It means that their actions or decisions could be called into question or their impartiality challenged.
There are three types of conflicts of interest:
- Actual: Where the conflict already exists.
- Potential: Where the conflict could happen or is likely to happen.
- Perceived: Where other people might think a conflict has occurred.
It’s important to note that even where a person hasn’t been compromised, if others assume they have, it’s still a problem. Managing conflicts of interest isn’t just about being impartial – it’s also about being seen to be impartial.
It’s not always possible to avoid conflicts of interest, as they usually come up entirely innocently. So recognising where they occur and managing them is key.
1. Avoid favouring family members, even in a family business.
This can be a tough one. When a family business starts up, the employees are usually all family, and do whatever jobs need to be done. But as your family business grows and employs people who aren’t family members, it’s vital to ensure you don’t end up with two classes of employees. An employee shouldn’t feel that their chances of promotion are stymied by having the wrong last name.
Similarly, don’t keep family on the books as employees unless they’re actually working for you – and producing value. If you wouldn’t pay a non-family employee to not do anything, don’t do it for family either.
2. Get full disclosure from employees and contractors.
You can’t manage conflicts of interest if you don’t know about them. Particularly as contractors become more prevalent in small business, it’s important to know who else they may be working for and if there’s anything that conflicts with your business. That’s not to say you shouldn’t hire someone over a potential conflict of interest, but you should know the possibility is there and have measures to deal with it if a compromise does happen.
3. Watch out for employee relationships.
Love can spring up anywhere, especially between workmates who spend a lot of time together. But when it does, the potential for conflicts of interest increases greatly. Some businesses try to prevent romantic relationships between colleagues, which only means the parties are more likely to lie about their relationship.
Instead, should office intimacy bloom, take steps to limit the potential for conflicts of interest. An employee should never be directly managed or supervised by their partner or spouse, nor should they be involved in performance reviews of their partner.
3. If the worst occurs, seek outside mediators
It may not be possible to prevent a conflict of interest arising, and that conflict could have serious implications. For instance, an employee tells their employer that they have been subject to sexual harassment or workplace bullying by a co-worker – who happens to be the employer’s child. It would be impossible for the employer to take part in any investigation without the appearance of bias. They should step aside, and if there is no one independent available, they should contact professional business mediators to discuss solving the problem adequately.