Conflicts of interest and how to avoid them
We hear a lot these days about the term “conflict of interest,” especially in the business sector and the consulting services market. The concept is important to all of us in our professional and work-related affairs, whether commercial or legal.
In general, a conflict of interest arises when an individual or enterprise has personal, financial or other interests that may affect the integrity of decision-making in the organization in which they operate, bringing a risk of financial or administrative corruption.
There may be questions about whether an individual can be impartial, and represent the company’s best interests in making decisions. In such a situation, the conflicted party is asked to disclose such information, and in many cases the law requires them to withdraw.
An example of a conflict of interest would be if an individual owned a catering firm, and was also on the board of a second company that was supplied with food by the first. Let us suppose that the catering contract was being discussed by the second company’s board. A low price would be good for the company, but a high price would be good for the catering firm and its owner; that is a clear conflict of interest. The key is whether an individual has an opportunity to place personal gain over their duties toward an organization in which they have a decision-making role.
The law is clear on conflicts of interest, although the regulations may vary according to the sector involved. For example, there is a list of potential conflicts of interest in the practice of government competition and procurement, and another with regard to banks and financial institutions.
Accepting gifts from potential clients or customers is another common example of a conflict of interest, which is why many companies prohibit the practice. Confidential information and data may also create a conflict of interest if there is a potential personal benefit for the employee who has access to it.
Saudi companies law obliges board members to disclose their personal interests in contracts and transactions with the company. They are prohibited from trading and competing in the same activities as the company without a license renewed annually; this applies to the company’s actual activities, not necessarily only those referred to in its articles of association.
In any company, it is important to clearly define the scope of conflicts of interest so that staff fully understand them. Employees should also have professional development opportunities that increase their knowledge of work ethics and transparency, including the role of full disclosure and how to deal with its consequences.
Avoiding conflicts of interest is a moral responsibility before it is a professional one. Nevertheless, human beings are motivated and encouraged by rewards, so when companies adequately compensate their staff, those staff are less likely to be tempted to benefit personally from a conflict of interest.
Dimah Talal Alsharif is a Saudi legal consultant, head of the health law department at the law firm of Majed Garoub and a member of the International Association of Lawyers. Twitter: @dimah_alsharif