Anti-Corruption Compliance Blog - Published: 01 June 2018
Philippe Montigny
President of ETHIC Intelligence - Paris
Every act of corruption involves a conflict interest, but not every conflict of interest involves an act of corruption.

Every act of corruption involves a conflict of interest. The receiver or corrupted individual acts in his own interest and not in that of the organization he represents.

What is a conflict of interest?

When an undue advantage is given, for example, to a public official, to influence his decision in violation of his obligations, a conflict of interest is created. The public official will benefit from an undue personal advantage and is expected to use his power as a public official to give precedence to the interests of the bribe payer over those of his own organization. This is an example of active corruption in which the individual in a conflict of interest is external to the company.

When a company employee accepts an undue advantage from a supplier, for example, when the supplier gives the employee confidential information on competitors, there is also a conflict of interest. He does not act in the company’s interest the company will not benefit from the best offer or price. This is an act of passive corruption where it is the internal employee who finds himself in a situation of conflict of interest.

Every act of corruption involves a conflict interest, but not every conflict of interest involves an act of corruption.

For example, if a member of the purchasing department is related to a supplier and does not communicate any information to his family the interest of the company will be preserved. However, it will be difficult to convince others that there is no conflict of interest. How can the purchasing officer prove that he did not communicate sensitive information to the supplier? How can he demonstrate that there was no corruption ? How can he defend himself?
The suspicion of a conflict of interest leads to the suspicion of corruption. Only a policy designed specifically to manage conflicts of interest transparently will be able to prevent these suspicions.
A policy to manage conflicts of interest has two advantages.

The first is for the company as it is an efficient complement to the other purchasing and decision-making procedures: commercial development, joint-ventures, mergers, shareholdings… The policy will ensure that the delegated power is always exercised in the company’s best interests.

Secondly, the policy will be useful to staff who can cite it to avoid questions on the integrity of their decisions in situations where suspicions of corruption tend to surface. But for the implementation of a policy on the management of conflicts of interest an explanation to the employees will be necessary.

Explain conflicts of interest… and detail the importance for staff members

Many staff have only a vague understanding of what represents a conflict of interest and do not fully understand the damaging consequences that such a situation could have for them.

The first step in the management of a conflict of interest policy is a thorough explanation of all types of conflicts of interest and the suspicions they can engender. Certain conflicts of interest are obvious: choosing a supplier in whose company a staff member or his partner has an interest. Others are less evident including the choice of a supplier which employs a family member, a close friend, the member of a shared political party or an elected member of the municipality of which you are also member. In many cases the conflict of interest does not cause a problem if it is transparent. Thus, if the child of an employee who works in the IT department has a job in the accounting department of the company charged with maintaining the company’s computer services there is not necessarily an inherent conflict of interest. Nothing in the tasks of this child – nor in the relationship that this child has with his or her parent – can affect the attribution of a contract. However, if there are rumors that the child of a staff member works for a company supplier without further details, suspicions could ensue. Suspicions which can be swept aside once details have been provided.

A successful procedure to manage conflicts of interest depends on the employees’ understanding that it has been designed to protect them from situations in which they could potentially find themselves where a public explanation would be necessary.

The explanation of what a conflict of interest entails and the potential damage it can cause is handled in different ways: via training, for example, during a session on ethics and corruption prevention; or through an e-learning module; or simply through its inclusion in a specific manual on the subject or within the company’s code of conduct. What is most important is to emphasize the fact that the conflict of interest policy is there as much to protect the company as it is to protect the employees. It is useful to give concrete examples of seemingly innocuous situations which appear at first glance to be free of conflict, but which could ultimately turn out to have embarrassing consequences for the staff member.

Conflict of interest: declare, step aside, comply

A procedure on conflicts of interest must allow the employee to declare a conflict if his function or area of responsibility places him in a delicate situation. The declaration should be made to his superior who will be in a position to appreciate the conflict and the potential damage for the company.

If the conflict is such that it would prevent the employee from carrying out his function with total independence the scope of his responsibility may be reduced, or his decision-making power limited. For example, if the employee is a shareholder in a company supplier over which the employee has decision-making discretion he should not be allowed to participate in the examination of tenders.

However, it is also possible that the conflict of interest poses no threat to the company. If, taking the aforementioned case as an example, the employee’s child works in the supplier’s accounting department. Even if the situation creates the suspicion of a conflict, the misconception will be quickly disabused once it becomes obvious that there is no risk to the company.

The policy to manage conflicts of interest must make it clear that conflicts come in many forms. They are part of everyday life and often a simple declaration will clarify any doubts.

A policy on conflicts of interest: necessary from the first day to the last

A declaration on the absence of conflicts of interest must remain with the staff member throughout his employment: from the first to the last day with the company.

Upon recruitment the staff member signs a document requiring him to declare any potential conflict of which he is aware: for example, if his partner works for a competitor, a supplier or if he is related to another member of staff.
Throughout his time at the company, he is required to make regular declarations on the absence of conflicts as his circumstance change. For example, if his daughter marries the sales manager of one of his suppliers or if his mission changes and he is required to work with a company run by a childhood friend.

A declaration on the absence of conflict must also be made by the staff member when he leaves the company. For example, if, upon retirement, he works as a consultant for one of the company’s partners or suppliers.
The key to a policy on conflicts of interest is total transparency which is an inescapable requirement of corporate governance.

The right to confidentiality and respect for a private life

The requirement for transparency has a limit however: the right to privacy.

A staff member could find himself in a position of conflict of interest but not wish to give the reason. In this case, he must declare the conflict and ask to be relieved of any decisions that could be affected by the conflict. He is not required to give his reasons or justifications.

This situation can arise if for example, his partner works for a supplier, but he does not wish the relationship to be public; or he has personal, religious or political commitments with a third party on which he does not wish to comment.
The company gains credibility for its conflict prevention policy as it demonstrates its commitment staff confidentiality and privacy. And awareness of this commitment to confidentiality is what will ensure staff’s adherence to and acceptance of the conflict of interest policy.

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About Philippe Montigny

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Philippe Montigny is the founder and CEO of ETHIC Intelligence, a leading anti-corruption certification agency that has been certifying companies since 2006. He has over 20 years of experience in anti-corruption compliance, beginning at the Office of the OECD Secretary-General, for which he was involved in the ministerial negotiations that led to the OECD Anti-Bribery Convention in 1997. Philippe Montigny was also a co-drafter of the compliance management system standard (ISO 19600) published in 2014 and of the anti-bribery management system standard (ISO 37001) published in 2016 and served as ISO liaison officer between the two.

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