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How corporations can deal with conflicts of interest

Conflicts of interest happen when one of the decision-makers in the company has a financial interest in one of the firms doing business with the corporation. To this end, the said director may reveal trade secrets, budgetary allocations or approved designs to managers of the company they are interested in to give them an upper hand in competitive bidding.

On the other hand, a conflict of interest may occur where the decision-maker makes judgments based on their vested interests in the business. Such decisions are likely to be biased, with judgments that raise questions about their validity. Conflict of interest may have legal implications.

Here is an example. A director can vote to lower the strict requirements for new distributors enrolling into the company when he has a business in mind that would not meet the strict requirement. While this can help open up new markets, it is done in bad faith.

Duty of loyalty

A person who has an ethical or legal relationship of trust with others has a duty of loyalty. Therefore, they must conduct themselves to benefit the people who have entrusted them with the position.

The fiduciary takes care of the assets and money of the beneficiary. Therefore, they must act in good faith, morality, honesty, and fairness as required of the position. They must not do the following:

  • Make interested transactions
  • Misappropriate business opportunities
  • Beak a duty of confidentiality

This means that the fiduciary cannot take any business opportunities for their benefit or make any personal profit using property or information entrusted to them.

Remedies for conflict of interest

Sue for damages

Most instances of conflict of interest are known when the damage is done. The company or beneficiaries may sue responsible individuals for damages due to harmful activities by the accused. The court may award restitution and send the accused to jail.

Proper policy structures

There should be a policy that clearly explains forms of conflict of interest and what actions can be taken against the proprietors. This offers a basis to detect and prevent such instances in the company. Part of the policy should be a requirement to disclose potential and actual conflicts of interest.

Proper procurement policies

Most instances of conflict of interest are evident during procurement decisions. Most decision-makers use underhand techniques to influence the award of tenders, concessions, and other opportunities to their preferred firms. Organizations should have watertight procurement policies and procedures. Suppliers and partners should be adequately vetted before doing business with the organization.

Fiduciaries should safeguard the interests of the beneficiaries, such as shareholders, employees, and the company at large. They should avoid engaging in transactions for self-profit. Companies should also have robust policies to ensure this is implemented and upheld.