Sunday, February 24, 2013

Dealing With Conflicts of Interests

Occasionally in business, Senior Managers are confronted with employees that have a conflict of interest.   It is no problem if disclosed and can be properly prohibited.   It is a very big problem if an employee is somehow personally benefiting financially, outside normal compensation and benefits, from association with the company.   Years ago, while I was providing consulting services for a major company, I encountered a Director of Human Resources, who was hostile to the common sense recommendations I was making to benefit the company.  

At first, I did not understand this hostility until I found out that this particular Director of Human Resources, who was in charge of recruiting, was referring new hire employees to his wife, a local real estate agent, to assist new hires with purchase of a home in the area.   As a result, every time a sale took place, he and his family benefited from the commission income his wife was earning.   This amounted to a substantial amount of money.  This was not only a clear conflict of interest, it was a violation of their company policy.   Once discovered, as an outside Consultant, I was obligated to bring this matter to the attention of the Senior Management of the company.  

Once revealed, the Director was ordered to cease and desist; but perhaps should have been terminated for not revealing this clear conflict.   This situation was not just about the monies being earned under the table so to speak, but also the difficult position new hire employees faced if they decided not to work with the Director's wife.   After all, the Director of HR was the guy controlling the hire decision.   So naturally, a new hire employee felt pressured to work with the Director's wife, which included revelation of personal information necessary to complete a home purchase transaction.   It was just plain wrong and very unethical.  

Conflicts of interest can also occur related to supplier relationships, which always should be arms length.   Accepting gifts, perhaps other than consumable items like food during the holidays, or an occasional dinner, should never occur because it will compromise the relationship.   Sometimes, these gifts border on a bribe or kick back, which is actionable and if discovered in our company would result in termination.   All employees should be conscious of potential conflicts of interests.  

If there is any question about any personal business dealings, an employee must reveal such activity, rather than wait for it to come out some time later.   The Senior Management of a company will determine if a conflict exists and if so should order a cease and desist.  Once that order comes down, failure to observe the rules should result in termination. 

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