Clarify ethical guidelines

Have a policy for conflict of interest

A conflict of interest in the workplace typically arises between the organisation and an employee or a director (including both executive and non-executive directors). It can occur in organisations of all kinds: private sector, public sector or non-profit organisations. The potentially negative consequences and risks emanating from conflicts of interest warrant that all organisations have a comprehensive policy to address this.

The policy firstly needs to include a definition to ensure clarity about the term. For example, a conflict of interest refers to a situation in the workplace when an employee or director has competing interests, allegiances or loyalties that are, or could be, in conflict with each other. The conflict would generally be between the employee’s or director’s self-interest and what is in the best interests of the organisation.

For organisations with multiple subsidiary companies or widespread ownership interests in other companies, it is recommended that these are specified in the policy. This disclosure ensures that it is clear that these entities fall within the ambit of the organisation’s area of interest and it makes employees aware that they must avoid conflicts with these other entities too.

The objective of the policy would be to avoid conflicts or potential conflicts of interest as a way to minimise the negative consequences. These include that competing interests may undermine the employee’s or the director’s impartiality, compromise the performance of the employee’s workplace duties or limit the employee’s ability to meet the responsibilities of his/her organisational role.

The policy should list the behaviours or actions that employees and directors are required to do, such as to:

  • disclose any involvement in any trade or dealings between the organisation and any other party, either when the organisation has a direct or indirect interest, irrespective of whether the employee or director stands to gain in any way from such dealings or not;
  • disclose the involvement of any close family member in any trade or dealings between the organisation and any other party, either when the organisation has a direct or indirect interest in that party;
  • annually disclose gifts and hospitality received. (If the definition of what all constitutes a gift is not addressed in a separate Gift Policy, it should be done here. A gift can be considered any tangible article, benefit, favour, gratification, product discount not in the normal cause of business, commission, property, valuable security, occasion, entertainment, sporting event or function that is given to be kept, used or attended at no cost or for which the recipient does not pay fair market value.)

The policy should also detail the behaviours or actions that its employees are not permitted to engage in, such as:

  • perform or undertake to perform work for remuneration outside the organisation. A general exception would be for non-paid work such as community-related work or charity work;
  • do any work on the organisation’s premises that is not related to the employee’s duties either for him/herself or others;
  • use the organisation’s resources or equipment for private purposes;
  • engage the organisation’s employees for private purposes or permit such employment by others, even if there is no payment for the services or work;
  • accept any commission, fee, reward or ownership interests, monetary or otherwise, from sources outside the organisation in respect of the performance of his/her duties within the organisation;
  • be involved directly or indirectly in any trade or dealings between the organisation and any other party, either when the organisation has a direct or indirect interest in that party or when the employee stands to gain in any way from such dealings; and
  • misuse his/her position to promote personal interests at the expense of the organisation
  • do business in competition with the organisation.
  • The policy can also detail the behaviours or actions that its directors are not permitted to engage in. This may, for example, address what is and is not acceptable as regards taking on other directorships.

    The conflict of interest policy should also outline the potential sources of conflicts of interest that are most common in its industry or that are particular to its business, as well as how these can be identified. In the public sector, for example, this could take the form of officials influencing government tender processes so that their family members and friends are awarded state contracts and using their public position to benefit their private interests.

    The policy should include guidelines about how to manage and avoid conflicts of interests and detail the procedure for compliance with the policy. The procedure is likely to entail immediate and full disclosure of any conflict or potential conflict and, when relevant, the employee’s or director’s withdrawal from any involvement or action relative to the conflicted deal, interaction or process.

    The consequences of non-compliance also need to be clearly set out in the policy, for instance, that transgressions will be dealt with in terms of the disciplinary code and that employees found guilty of a conflict of interest may face dismissal.

    The policy should include details of how employees (or others) can report infringements, for example, via a particular executive or department and via an ethics hotline for anonymous reports.

    By Cynthia Schoeman
    Posted on HR Future, August 2014