Conflicts of Interest are among the thorniest issues that
organizations and ethics and compliance professionals face.
ECI (The Ethics & Compliance Initiative) recently released the results of a study about conflicts of interest—how to define them, identify them, deal with them, and prevent them. See Conflicts of Interest, October 2016 (link below).
Our earlier blog post “Conflicts of Interest, Part I” highlighted examples of potential conflict of interest situations provided in the ECI report. Examples like these are often included (and should be included) in codes of conduct and in related policies to help define what the organization means by “conflict of interest” and to clarify the difference between situations that likely would be considered conflicts of interest and those that would not.
“Conflicts of Interest, Part II” will summarize ECI’s recommendations about how to identify, deal with, and prevent conflicts of interest. The full report provides additional depth and guidance.
Identify: The following measures will help organizations and employees identify potential or actual conflicts of interest (COIs), enabling them to either prevent the conflicts or mitigate the effects.
- Disclosure and certification, to include required annual conflict of interest certification forms and self-disclosure processes, supplemented with related communications, training, and record-keeping
- Tracking mechanisms, either manual or online (preferred), possibly using and outside vendor to track the disclosures
- Risk assessments, either targeted at COIs only or integrated with overall compliance risk assessments and audits
- Audits, which vary in level of sophistication
Although not specifically called out in this study, ethics hotlines are useful as part of the “identify” toolkit; other studies have shown that instances of fraud are caught sooner and typically at lower cost when employees have an avenue for reporting concerns.
Deal with: As stated in the report, organizations should ensure they have a process through which disclosed conflicts are reviewed quickly and thoroughly by persons who have sufficient training and experience to accurately assess the COI risk. They then must remediate the conflict, through such steps as:
- Segregating individuals from relevant decision-making
- Transferring supervisor roles over relevant employees to others
- Disposing of assets that cause the COI
- Terminating the external activity that causes the COI
- Prohibiting continued involvement in the activity that creates the conflict, and more
Prevent: Training and communication are essential to maintaining employee awareness and preventing conflicts of interest from occurring. ECI addresses the following strategies in its report.
- Formal training
- Anonymized cases from the ethics and compliance office files
- Focused leadership training
- Messages from leaders
- Access to links or downloadable files with additional resources, and more
Training and communication efforts will be successful, the report reminds us, when they answer each learner’s pressing questions: What does it mean for ME? WHY should I disclose, WHAT must I disclose, WHEN must I disclose it, and to WHOM?
Ideally, employees will avoid conflicts of interest because they are aware of the situations that pose COI risk and understand the risks to themselves and to the organization.
The ECI report reminds us that “there are a virtually infinite variety of situations that might create a conflict, existing as they do at the intersection of personal, family, financial, and organizational interests.” Which is why it is so important to review and enhance efforts to define, identify, deal with, and prevent conflicts of interest.
Ethical Advocate provides comprehensive ethics and compliance solutions, including ethics and compliance training and confidential and anonymous hotlines. Feel free to contact us for additional information.
Ethics & Compliance Initiative (ECI). Conflicts of Interest, October 2016.