What Is A Conflict Of Interest? (Examples And Tips To Avoid)

Updated 21 November 2022

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Professionals may often encounter conflicts of interest with clients, colleagues, superiors or with institutions. These situations can involve both personal and professional loyalties, but they almost always influence workplace culture. It is easier to prevent possible conflicts of interest if you understand personal and professional loyalties. In this article, we examine what a conflict of interest is, describe forms of conflict in the workplace and provide tips on how to prevent them.

What Is A Conflict Of Interest?

A conflict of interest is a situation in which a person or organisation has two or more competing interests. When this arises, the person or organisation is unable to carry out their responsibilities because doing so involves aligning their interests to one of the parties. Conflicts of interest can arise both personally and professionally.

You may, for example, be devoted not only to your employer but also to your family's business. If the goals of those two companies are so disparate that they directly contradict, you may have a conflict. The situation may require you to compromise your loyalty to one of the institutions.

6 Common Examples Of Conflicts Of Interest

Conflicts can take many forms and include a variety of personal and professional domains. While there are several cases of highly specific conflicts of interest, some occur more frequently than others. It is easier to comprehend conflict of interest with in-depth and real-world examples. Here are some of the most common types of conflicts and examples of instances where they can occur:

1. Nepotism

Nepotism is a situation where a person offers perks or favours to family members based on their relationship rather than their qualifications. It is possible for a person to employ a relative rather than a better-qualified candidate for a vacant position solely because of their relation to that person. Nepotism presents a conflict when the person you favour might not be the best person for the job.

Example: The human resources manager at a technology company is in charge of hiring a new employee in their customer service department. One of the candidates is the HR manager's brother. Despite his lack of experience in the industry as compared to the other top candidates, the HR manager decides to hire their brother. This can lead to a conflict of interest.

2. Embezzlement

Embezzlement occurs when a high-ranking official within a large company, uses the company's funds for personal gain at the expense of the company. It becomes possible for a person to take out a personal loan from their company or buy stock options relying on insider information. It presents a conflict and possible misdemeanours that can result in legal action, penalties and termination for individuals who commit it.

Example: The Chief Financial Officer or CFO at a manufacturing firm, has recently learnt that the company may soon acquire a company called SNK Production. Before announcing the news of the acquisition, the CFO utilises this information to enhance the value of their stock holdings. Insider trading is not just a conflict, but also against the law.

3. Excess compensation

Excess compensation happens when an organisation pays an employee, usually high-ranking with substantial social or political influence, more than they do for similar roles in the market. In a non-profit organisation, providing salary or perks for officials, directors or trustees can lead to a conflict. Labour unions in organisations may work to ensure that all employees receive appropriate remuneration for the amount of work they do.

Example: A national-level non-profit organisation that provides underprivileged students with scholarships requires a new director for philanthropy. They hire a former member of a prominent political party with significant political ties and pay them twice as much as their previous director of philanthropy. This can lead to a conflict within the non-profit organisation.

4. External employment

A conflict can emerge when a professional works multiple jobs in the same industry. One of the companies they work for may have access to confidential information that the other does not. It would be problematic if the employee uses information or resources from their first job at their second job or vice versa.

Example: Sam works at two different travel agencies. One is slightly less expensive than the other. Sam has been informing clients from the other, higher-cost company that they can call the lower-cost firm and ask for him to save them money.

5. Gifts

Accepting gifts from external stakeholders to provide an advantage presents a variety of conflicts. For example, a conflict may arise when a pharmaceutical company provides a doctor with a gift, hoping that the doctor might promote and prescribe their company's products. While the gesture is appreciable, most corporate regulations prohibit accepting gifts, to avoid potential conflicts.

Example: Sai is a mortgage broker who works with various real estate agents. One of their regular brokers presents Sai with a gift to encourage them to send clients to their brokerage firm. Sai accepts the gift and ensures their buyers work with that broker for their mortgage needs.

6. Stock manipulation

Artificial inflation or deflation of the price of a security constitutes stock manipulation. It is also known as market manipulation or price manipulation, and it involves misrepresenting the conditions of a financial market for personal gain. Stock-brokers and managers can propagate false or misleading rumours about companies for personal financial gains.

Example: Noor owns a substantial amount of shares of a security and spreads rumours about the security's worth to encourage his peers to purchase it. He hopes to make rapid money on each transaction. The security quickly increases in value and Noor sells it for personal profit, leaving his peers at a disadvantage at a later point of time.

Tips For Avoiding Conflicts

These are some tips to help you avoid potential conflicts in your professional life:

Follow established protocols

Organisations and governing bodies develop elaborate protocols and standards for addressing conflicts. Companies can prepare documents listing rules and restrictions. When you work for a company, make sure that you are aware of important guidelines that company management gives you.

Communicate early

The first step in addressing a conflict is to identify it. If you identify a possible or ongoing conflict, address it early on and communicate about all aspects of it. You can avoid many potential conflicts through clear, open and honest discussion.

Ensure transparency

Transparency is crucial for maintaining a healthy work environment. If you are in charge of managing resources or working with external stakeholders, ensure that your actions are transparent to avoid the implication of impropriety. Being transparent in your actions can help prevent conflicts from arising in future periods.

Learn to decline politely when absolutely necessary

It might be necessary for you to decline a position or assignment that presents you with a potential conflict. Speak to your supervisor about the position or the assignment that they are considering you for. Avoid financial engagements that pose potential conflicts.

Tools For Addressing Potential Conflicts

Business enterprises and individuals can make use of a variety of tools and practices for addressing potential conflicts. Some practices may pertain to organisational policies and may differ from company to company.