Conflict of Interest Defined: 5 Conflict of Interest Examples

A conflict of interest (or COI) occurs when someone breaches their duty of loyalty to their employer to act in accordance with their personal interests. Possible conflicts of interest include hiring or promoting relatives and close friends, basing financial decision-making around personal interest rather than what’s best for the business, or sharing confidential information with competitors. Any of these circumstances can harm other stakeholders in an organization.

Conflicts of interest might involve only one person or a few persons, but they can damage an entire firm’s credibility. Many companies have internal processes to handle these issues themselves, although there are federal and state laws meant to prevent this kind of behavior, too.

Consider these three ways to handle or squash potential conflicts of interest:

1. 1. Establish a practice of disclosure. Unless people feel they can come forward about potential conflicts of interest, they might remain quiet and allow corruption to fester. If an employee sees a potential conflict, they should be able to raise the matter as a whistleblower. This means every organization should establish a code of ethics or conflict of interest policy. Sometimes, people might even disclose conflicts about themselves. For instance, if a court assigns a judge to try a former business associate or close friend, that judge can recuse himself from the case to avoid any conflict of interest.
2. 2. Investigate the facts. In many circumstances, perception is reality—but this shouldn’t be the case with conflicts of interest. A company should establish an investigatory process to resolve such conflicts. Sometimes, a perceived conflict of interest doesn’t equate to an actual conflict of interest. Organizations should have an independent review board in place to conduct appropriate investigations whenever charges arise on this front.
3. 3. Remove the offender. If you find a person to have acted in their own private interest at the expense of the general public or their business associates, this impropriety might lead you to dismiss them from employment. Prohibitions on these sorts of conflicts are often firm and ironclad to maintain general trust in institutions, and immediate removal shows there are consequences to this sort of behavior.

People can betray the interest of their employers and associates in numerous ways. Here are just five types of conflicts of interest:

1. 1. Engaging in nepotism: Mixing personal relationships with professional ones can easily add up to conflicts of interest. For example, a public official might regulate a close friend or family member’s company with a more relaxed hand than their competitors; or a law firm partner might promote their child to a high-ranking position straight out of law school despite more qualified candidates vying for the job. People should strive to avoid the mixing of their personal and professional relationships.
2. 2. Making self-interested decisions: Whenever someone acts in their own financial interest at the expense of their company’s, they may be guilty of self-dealing. Consider a business partner who pursues their own personal benefit while breaching their fiduciary duties to clients and associates. These financial conflicts of interest can manifest in a host of different ways.
3. 3. Pursuing insider trading: Imagine someone knows their company’s stock will dip and encourages their spouse to sell all their holdings before normal stockholders become aware of the situation. This would be an example of insider trading, which occurs when an employee or individual on a board of directors uses their official capacity and intimate knowledge of a company’s financial status for their own financial gain. Business circles frown upon this practice, and multiple laws and ordinances outright ban it.
4. 4. Revealing confidential information: Keeping your organization’s secrets under wraps is an official duty regardless of where you work. Revealing private and confidential information portrays a sheer lack of professional judgment and becomes a conflict of interest if that revelation leads to your own personal, financial, or professional gain.
5. 5. Working for two competing companies: Many people can perform two jobs without worrying about any real competing interests between the two. But when someone seeks outside employment with an official company competitor, they might put themselves at risk of corruption charges. One company’s confidential information might fall into the hands of another, which presents a clear conflict.

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