By Richard Lowe
Reprinted: 2003-10-25

One of the most insidious traps in the world of business (or in any other place for that matter) is this thing called a "conflict of interest". The conflict produces a situation whereby your decision to do or not do something is swayed by other or outside interests. In other words, you need to make a business decision, and your decision is changed (or appears to have been changed) based upon something other than what's going on at your job.

Sometimes these conflicts are completely and totally obvious. In our company we are all forbidden to accept any gifts from any vendor. In fact, this policy is brutally enforced by suspension and possible termination. Why? Well, let's say a buyer has to purchase a million dollars worth of product and he receives "gifts" from various competing vendors. Is he making decisions that are in the best interest of the company or is he simply repaying that "special" vendor who gave him a trip to Hawaii?

There are many ways that conflicts of interest appear. Sometimes they are hobbies, sometimes gifts from people, sometimes simply having an agenda other than that of the company.

I've found that a person with a hobby is a person with what is potentially a fascinating conflict of interest. For example, when I was just seventeen years old, I managed a liquor store. My boss was a German U-boat commander from World War II, and he loved German wine. We had German wines all over the place. The stuff never sold, not a single bottle, but regardless we had the bottles everywhere. I distinctly remember having to dust them constantly. I used to wonder why we carried these dogs, but no longer. The boss had a hobby. He liked German wines, and in spite of the fact that each bottle on the shelf was wasted money (and a lot of it, these bottles were not cheap) he continued to purchase them. This part of the business was actually his hobby.

A more obvious conflict is the one between an auditor from an outside firm and the auditor's firm. Let's say you hire Joe from XYZ company to audit your books. You hire lots of people from this company to perform audits all of the time. Since the auditing firm makes money from your business, there is an apparent conflict of interest here - an auditor which finds problems may find himself out of a job. This conflict becomes even greater if the auditing firm gets follow-up work based upon the results of the audit. That's why intelligent managers make it very clear to their auditing firms that they understand this natural conflict. These managers also MUST make it clear that they expect unbiased results, and attach severe penalties for improprieties.

A boss who hires a friend or relative is also guilty of a conflict of interest - in fact, the boss will find this conflict will only get worse as time goes on. No matter the circumstances, employees will never respect the boss who performed this hiring or the employee who was hired. In this instance, even if there is no conflict of interest, the appearance is so strong that it cannot be overcome.

I remember at one job the boss (and owner) hired his wife as the secretary for the company. She was soon promoted to a vice president. This cause no end of problems at our company. Several other competent people were passed over for the promotion, which created a huge amount of bad feelings among the staff. Every decision that she made was questioned, and after that no one really trusted the owner anymore. In this case the problem was not that she was hired or even promoted - the problem as that the boss promoted his own wife. If she had earned her way up and been promoted (or not) by other managers based upon her merit, then the conflict could have been avoided.

I've seen people in situation where they had to make a decision and took into account "what was best for their career" or made the decision that would give them the best raise or bonus. There is nothing wrong with pursuing a career or working towards better pay, but decisions must be made which are best for the company and which are ethical. Period. Thus, if there is a choice between a good decision for my company or a good decision for my career, then the company wins every time. And in the long term, this is the best decision for any career.

Good employees and good managers avoid situations like these as if their lives depended on it. A conflict of interest, apparent or otherwise, is never a good thing. Decisions must be made based upon facts and must be made to the advantage of the company to which you work for (and owe your allegiance). The most ethical thing to do is to make decisions which fulfill the goals of the company, and not which fulfill your own personal agenda.

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