In the competitive world of business, lines between personal and professional connections can blur, creating an apparent conflict of interest. Picture, for example, a mid-sized tech company executive tasked with selecting a consultancy firm who can help them develop a winning growth strategy. The executive’s sibling happens to be a business consultant specializing in the tech industry and has been wildly successful in the past. As the management team evaluates proposals from various consultancies, the executive decides to invite their sibling’s firm to submit a proposal, confident in their past successes.
This situation could easily raise eyebrows amongst people as they grow concerned about what looks, from the outside, like a conflict of interest, even if no actual impropriety has occurred. The focus on how such a scenario is perceived, rather than the actual presence of or potential for a conflict of interest, can make navigating apparent conflicts tricky.
If this sounds a bit confusing, don’t worry, ComplianceBridge is here to help you sort it all out. In this article, we’ll define apparent conflict of interest and how apparent conflicts compare to other forms of workplace COI. We’ll also discuss the potential consequences of apparent COI, as well as proactive measures for monitoring and mitigating these and other such risks within your organization. Let’s begin!
Anatomy of a Conflict
Discussions of workplace conflict of interest can take a few different forms.
Actual Conflicts of Interest
An actual COI is a conflict that tangibly, currently exists between someone’s professional duties, and their personal interests. Let’s say an employee at your organization holds a second job advising a company that is in direct competition with your business. Because this (hypothetical!) employee holds two directly oppositional positions, there is an immediate threat to their ability to make unimpaired decisions as a representative of their employer. This represents an actual conflict of interest.
Potential Conflicts of Interest
A potential conflict of interest, meanwhile, describes a situation where a conflict could arise in the future, but hasn’t yet. For example, if an employee at your organization considers taking or applying for a job at a direct competitor, there is certainly potential for a conflict of interest there, even if one does not exist at present. While an actual COI currently impacts decision-making, a potential COI represents a scenario where a conflict doesn’t yet exist, but could reasonably develop.
Apparent/Perceived Conflicts of Interest
Then there’s what’s known as an apparent conflict of interest, also sometimes referred to as a perceived conflict of interest. An apparent conflict of interest is a situation where a conflict may appear to exist to an outside observer, even if no such conflict exists in reality. A CEO giving a board seat to their cousin might be an actual conflict of interest, while a CEO having lunch with their cousin who happens to work for a potential vendor is a perceived conflict of interest.
What Makes an Apparent Conflict of Interest so Tricky?
Actual and potential conflicts of interest tend to be relatively easy to identify, and just as simple to document in disclosure forms and business ethics policies. Apparent conflicts, on the other hand, are a little slippier. Unlike with an actual conflict, or a potential conflict, the danger of an apparent conflict of interest lies in how a situation looks, not just what’s actually occurring (or has the potential to occur).
An apparent conflict of interest can arise from personal relationships, financial interests, or even just the mere suggestion of the appearance of impropriety. Consider our initial, introductory example in which a tech executive decides, based on merit, to invite a consulting firm that employs their sibling to submit a proposal, for a potential business consultancy.
No actual conflict may be present, but an apparent conflict arises when a situation looks like it could influence someone’s impartiality—even when it doesn’t. Evaluations of apparent conflicts center on how an outsider would interpret or judge the situation, instead of on the situation itself. While the tech executive is making unbiased decisions based on the best interests of the company, others may notice the personal relationship involved and perceive it as favoritism.
Why do Appearances Matter for Compliance?
Because an apparent conflict of interest doesn’t indicate real, immediate risk, like an actual COI, or invite the possibility of risk in the future, like a potential COI, it may be tempting to say that an apparent conflict doesn’t represent any actual danger for your organization. No harm, no foul…right?
The reality of the situation is that optics matter, especially for businesses that want to stay in good public, industry, and regulatory standing. Even if no rule is technically broken, the appearance of bias can severely undermine public trust in an organization. Trust, once lost, is a difficult thing to regain, and consequences for just the perception of a conflict of interest can be severe.
If your organization doesn’t isolate and avoid apparent conflicts of interest, public trust isn’t the only thing you’re risking. If an apparent conflict of interest is detected and not appropriately addressed, this realization may trigger investigations, which could have serious consequences.
Your company could face increased regulatory scrutiny, or even the possibility of lawsuits. If a stakeholder, client, competitor, or another party believes they were harmed by an apparent conflict of interest, they might pursue legal action. This could include seeking damages for monetary losses or harm caused by this perceived conflict, further damaging the reputation and financial standing of your business.
How to Avoid and Manage Apparent Conflicts of Interest
Encourage Disclosure
When in doubt, report it! Again, an apparent conflict of interest is determined by how a situation looks, not whether or not an actual conflict is present. To that end, if someone thinks that a situation might appear to be an apparent conflict of interest, it probably is one.
Encourage employees to overreport these perceived conflicts, and make it clear that workers won’t see retaliation or punishment for disclosing. This will help facilitate a company culture that prioritizes honesty and transparency, building employee trust and making it easier to identify and mitigate organizational conflicts of interest in the future.
Put it In the Policy
Effective COI policies play a vital role in not only avoiding actual and potential conflicts, but also in identifying and protecting against apparent conflicts of interest. A great first step for establishing trust and integrity within your business is establishing a transparent and proactive policy for employees, dictating best practices for disclosure.
This conflict of interest policy should:
- Define what constitutes a conflict of interest, and provide multiple examples of actual, potential, and apparent conflicts
- Provide guidance on how employees can disclose any potential conflicts of interest
- Encourage open communication and the importance of transparency
- Outline the process for evaluating and addressing a conflict
- Clearly state the consequences of failing to disclose conflicts of interest
Review and update your company’s COI policy regularly as necessary, to ensure that it remains relevant, effective, and in alignment with the needs and infrastructure of your business.
Provide Training
Regular COI training is also a great way to provide workers with how to identify and manage an actual, potential, or apparent conflict of interest. Don’t relegate this training to a one-time event just for employee onboarding, either. Schedule refresher sessions, to keep employees informed about their responsibilities regarding COI and to emphasize how seriously your organization takes ethical concerns around conflicts of interest, actual or perceived.
ComplianceBridge Provides Proper Tools for COI Oversight
At ComplianceBridge, we understand the risks that conflicts of interest can pose to an organization, whether those conflicts be actual or apparent. That’s why we’re here to help you and your employees identify and manage those risks with our simple, streamlined software for COI disclosure.
Managing COI audits manually can be a tedious, time-consuming slog, and may still leave your business unprepared to face regulatory or compliance audits. By embracing automation, ComplianceBridge frees managers and supervisors from hours-long reviews of COI spreadsheets. Instead, users receive access to a customizable, easy-to-use digital solution with real-time reporting, allowing faster, better-informed decision-making.
Using our platform, create custom questionnaires with preloaded question sets and the option to create conditional and weighted questions. Use targeted distribution to send forms to the entire company or to specific teams or departments, ensuring disclosures find the right people. Once distributed, users can schedule automated reminders, track progress and responses in real time, and automatically flag certain answers for further analysis and review.
The dashboard manager makes it easy to manage and review responses, facilitating in-depth, data-driven analysis with the ability to generate visual reports, collate responses, and analyze trends in responses. ComplianceBridge never deletes any data, which is safely stored in a centralized database with top-tier security and daily backups, keeping your business compliant and audit-ready at all times.
Take the first step to better protect your business from the threats posed by apparent conflicts of interest, and contact ComplianceBridge to request a demo today!
