How to manage a conflict of interest at work

Conflicts of interest are common in all organisations and if managed appropriately are unlikely to cause serious problems. It is only when conflicts of interest are concealed, understated, mismanaged and/or abused that they become problematic.

 What is a conflict of interest?

A conflict of interest exists when a person’s personal interest (such as a familial relationship, friendship, financial interest, legal obligation or social/professional affiliation) is inconsistent or conflicts with their duties in their employment role. This creates a risk if the personal interest is capable of compromising their judgement, decisions or actions within the workplace.    

Conflicts of interest in the public sector

Identifying, managing, and resolving conflicts of interest is essential to good governance and maintaining trust in public institutions. If they are not controlled appropriately, they have the potential to undermine public confidence and damage the integrity of public agencies.

In all Australian states and territories conflicts of interest are regulated so that public sector employees are required to disclose any conflict of interest and take steps to manage it. Compliance and serious breaches may fall within the purview of each jurisdiction’s independent ‘watch-dog’ such as the NSW Independent Commission Against Corruption.

Local Councils have codes of conduct regulating conflicts of interest for council officials, who are involved in decisions which affect the community.

In the Australian Public Service employees must take reasonable steps to avoid any conflict of interest and disclose details of their personal interests. Guidance is provided by the Commonwealth Ombudsman and The Merit Protection Commissioner.   

The responsibility is on individual agencies to adopt sound policies and management practices to prevent the risks associated with conflicts of interest. An employee’s failure to comply with conflict of interest rules can be misconduct.

Conflicts of interest in private sector

Even though most private organisations are not regulated by independent integrity or corruption bodies, they are still bound by industrial relations law, corporations regulation and fair work legislation.

 For example the Corporations Act 2001 requires directors to proactively manage and avoid conflicts of interest as part of their duties.  They may also have their own internal policies concerning conflicts of interest to protect the organisation.

Mismanaged conflicts of interest have been shown to affect workplace culture, lower employee morale, impact business reputation, increase workplace conflict and can be the root cause of low productivity.

Identifying conflicts of interest

Conflicts of interest fall into two broad categories –  pecuniary (involving financial or business interests) or non-pecuniary (for example family, friends, and other associations). Regardless of the category, a conflict of interest can be:

Actual: a direct conflict between a person’s personal interest and their duties. An example would be where a person makes a decision which gives them a personal financial benefit.

Perceived: when a personal interest could reasonably be perceived as having an improper influence on an individual’s duties. An example would be where an employee’s child attends a school which is being audited by the employer.

Potential: when a person has a personal interest that could give rise to a conflict of interest in the future. 

There are multiple possible situations which can give rise to a conflict of interest.  In some roles employees’ interests can be identified in advance by using employee questionnaires where appropriate, but generally employees should be aware of the importance of avoiding potential conflicts and feel able to disclose conflicts of interest voluntarily.

Managing conflicts of interest

It is essential that organisations know and understand their legal obligations about conflicts of interest and if their workplace is governed by legislation, policy or procedures.  

It is important to understand that conflicts of interest are common and although not inherently illegal, create situations that require careful attention and a process for handling, which is not always prescribed by statutory frameworks or policies. For that reason, it is critical that organisations have an effective conflict of interest policy and/or procedure.

A conflict of interest policy should include:

  • A definition of terms and the types of conflicts of interest covered by the policy
  • A statement about who is covered
  • Procedures for reporting / disclosing conflicts of interest
  • Procedures for managing disclosed conflicts of interest
  • Procedures to be used if conflicts of interest go unreported

All employees should be encouraged to disclose personal interests which give rise to actual, apparent or potential conflicts of interest.  For example:

  • Have a standing conflict of interest item at meetings and make sure senior leaders are seen to share their interests.
  • Create a form that makes disclosing interests easy and self-explanatory
  • Provide practical (anonymised) examples of conflicts that need to be disclosed that have arisen in your organisation.
  • Make employees aware of the consequences of not reporting or understating conflicts of interest.

When a conflict is disclosed the employee and the organisation must find a method of ensuring it does not affect the proper exercise of the employee’s duties or the organisation’s obligations. This may be done by changing roles, delegating, seeking probity advice, or in some cases the employee giving up their personal interest.

Establishing effective policies and procedures to control conflicts can be a complex task. WEIR consultants have extensive experience in managing and investigating conflicts of interest, training employees about them and designing effective policy frameworks to mitigate the associated risks.  

Matt Truelove, Senior Consultant