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 third blog in our series about managing the conflicts of interest disclosure process. Here we will review common options for mitigating disclosures.
Oh Shoot, I got a Disclosure
New compliance professionals are often surprised by just how few conflicts are disclosed. Companies with tens of thousands of employees may have only tens of disclosures, especially if they don’t have a formal disclosure process requiring certification.
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.
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 significant relationships.
Board disclosures and financial conflict management are slightly different and will be reviewed later in our series.
Significant Relationship Management
Significant relationships include familial, romantic, and close friendships that can create dual loyalties. Here are the basic problems and broadly speaking, what to do about them.
What are your Potential Problems?
(or worse, fighting) from someone managing another with whom they have a significant relationship.
Don’t … let anyone with a significant relationship manage the person with whom they have that relationship.
Ideally… move those people into separate departments, as even peer relationships can cause issues when people bring their home lives into the office.
Personal Involvement in Hiring
Hiring or being involved in the hiring of a person with whom there is a significant relationship.
Don’t … let anyone with a significant relationship with a potential employee participate in the hiring or interviewing process of that person.
Ideally… the person with a significant relationship wouldn’t participate in the hiring process for the position, including interviewing other candidates.
Personal Involvement in Service Providers
Choosing a vendor or service provider owned by, managed by, or employing someone with whom they have a significant relationship.
Don’t … let anyone with a significant relationship evaluate a vendor or service provider if the person with whom they have that relationship owns, manages, or is an employee of the vendor or service provider.
Ideally… don’t allow the person with the significant relationship to be a part of the decision-making process for the procurement of the specific product or service, including for other options.
Access to Confidential Information
The other member of the significant relationship hears or can utilize confidential information, especially material information that could lead to insider trading.
Make Sure… the person working for the company is trained on confidential information and understands what can and can’t be disclosed.
Ideally… information that could be material or confidential is withheld or not shared with the employee with the significant relationship.
The person with a significant relationship is the account manager for a customer that is owned by, managed by, or employing someone with whom they have a significant relationship.
Make Sure… the person with the significant relationship gives the same terms to the customer as any other account.
Ideally… the person with the significant relationship isn’t allowed to be the account manager or to negotiate terms for the account.
While love and friendship may be the best things in life, they are also a major headache for a company trying to manage potential conflict.
By fully understanding the relationships creating the potential conflict and putting in reasonable mitigation, happiness can continue for both the employee and employer.
Next time in this series, we will review managing potential financial conflicts of interest. Stay tuned.