“Well baby, what I couldn’t do with plenty of money and you…” is how the old Tony Bennet song starts.

The lyric has two parts – plenty of money and another person.

That’s how the trouble starts in conflicts of interest disclosures involving financial issues. Money and somebody else.

Managing conflicts of interest seems so easy in theory. Someone discloses, the issue is managed, and everyone goes about with their day. The concept of conflict management is easy. In practice, it often isn’t.

This is the fourth blog in our series about managing the conflicts of interest disclosure process. Here we will review common options for mitigating disclosures relating to financial issues.

The first blog post, which focuses on scoping the program for success, can be found HERE.

The second blog post, which focuses on the tool you can use, can be found HERE.

The third, which focuses on mitigating disclosures relating to significant relationships, can be found HERE.

Ummm, what do I do with this disclosure?

New compliance officers are often surprised at just how challenging conflicts mitigation can be.

Instead of divining an easy “right answer,” we’re forced to make our best guess and hope we get it right.

It can help to remember that there are only three outcomes possible for disclosures: approval, mitigation, or get-out-of-this-company.

Approval is the easiest. Many conflicts, especially those that are theoretical but unlikely to create an actual conflict, can be noted, approved, and then not dealt with again. The irony is that people who disclose conflicts are frequently the least likely to have actual conflicts impair their judgment. If they are ethical enough to disclose them in the first place, you’re probably in good shape.

The conclusion that a conflict cannot be managed can be painful but may be necessary. If the conflict can’t be managed, then there is only one choice – either the discloser leaves the company or leaves the situation creating the conflict.

The middle ground is where things get tricky – mitigation.

Mitigation 101

The challenge with mitigating actions is knowing when enough is enough.

Unfortunately, there isn’t a meter that you can hook up to tell you whether the mitigation you’re considering is enough to effectively blunt the conflict

Managing conflicts is one of those uncomfortable areas of compliance where judgment is required and there is no black-and-white answer. You’ve got to trust your instinct and experience, as well as consider whether and how you could defend your decision if things go wrong.

Broadly speaking, conflicts come in two flavors: significant relationships and financial.

The following recommendations are for managing employee disclosures of financial issues. Board disclosures are slightly different and will be reviewed later in our series.

What do you mean by “Financial Conflict?”

A conflict may arise when an employee has a financial interest in a customer, vendor, supplier, or competitor of the company. A financial interest may include outside employment, board membership, private ownership (partial or total), and/or ownership of publicly-traded stock.

Publicly-traded Shares

It’s important to note that when it comes to publicly traded companies, a “financial interest” is typically defined as ownership of 1 – 5% of all company shares. If Apple supplies computers to the company, a person in Procurement owning 10 shares of Apple probably wouldn’t qualify as conflicted.

Which outside employment?

It pays to carefully consider whether or disclosure of all outside employment should be required.

Some outside employment should always be disclosed. This includes employment with competitors or employment that makes it difficult or impossible for the employee to complete the mandatory hours or requirements of the job.

However, many companies (especially American companies) require that all outside employment be disclosed.

In many places (especially outside America), this may be illegal or at least create extreme ill feelings. If an employee drives for Uber at night, judges dog shows on weekends, or makes crafts to sell on Etsy in their spare time, should they really have to go through the disclosure process and have top management sign off on their outside activity?

Consider privacy carefully before mandating someone disclose too much of their life as part of their employment.

Financial Conflicts Management

Financial conflicts can come into play in many ways. Here are the basic problems and broadly speaking, what to do about them.

The Potential Problems

Supplier/Procurement

Your company’s employee also owns, manages, or works at a company that is a supplier to your company.

Don’t… allow the employee to participate in the decision-making process for the product or service the other company is supplying.

Ideally… don’t allow the employee to participate in any way in a tender for the type of product or service offered by the company in which they are employed.

Customer Relationships

Your company’s employee is an owner of, manager of, or has employment at a customer of your company.

Don’t… allow the employee to be the account manager for the customer or to negotiate the terms for the customer’s account.

Ideally… the employee would not be able to interact with the customer’s account or negotiation for terms in any way. Find out if it is possible to move the employee to a different product line or away from anyone who is managing the customer’s account.

Competitor Employment

Your company’s employee is working at a competitor of your company.

Don’t… allow employees to work for a competitor if at all possible.

Ideally… interview the employee and find out exactly what they are doing. Provide antitrust training and tools for the employee.

Stock Ownership

Your company’s employee owns any amount of stock in a private company, or a substantial amount of stock (1% – 5%) of a publicly-traded company that is a competitor, supplier to, or customer of, your company.

Don’t… jump to conclusions. Interview the employee to find out if they have involvement in management, such as a board seat.

Ideally… provide insider trading training or tools for the employee. Be sure to train on tipping as a concept.

Outside Employment Interfering with the Job

Your employee’s performance is being affected by outside employment.

Don’t… jump to disciplinary action unless the situation is egregious. Talk to the employee first.

Ideally… check in with the employee’s manager to make sure the employee is meeting job requirements over time.

The Notorious B.I.G. may or may not be right that more money causes more problems, but when it comes to conflicts that a corporate compliance officer must manage, he’s 100% correct. Managing financially-related conflicts is a challenge, but one that can be overcome.

For the final blog in this series, we will review managing conflicts of interest for board members. Stay tuned.

Leave a Reply

Your email address will not be published.