Conflicts of Interest

Conflicts of Interest

Conflicts of Interest Jonathan Poland

A conflict of interest exists when an individual or organization has incentives that contradict their responsibilities. This can occur when a professional may be rewarded for subpar performance, although the existence of a conflict of interest does not necessarily mean that wrongdoing or poor performance has occurred. However, conflicts of interest can create potential problems and are generally avoided by businesses and often prohibited by laws and regulations. The following are a few examples of potential conflicts of interest.

Agents
In some cases, the agents for a buyer and seller in a transaction both work for the same firm. This can lead to the temptation to share confidential information to ensure that a deal is closed and commissions are realized. If this happens, it is typically considered a breach of fiduciary duty.

Bailouts
Government bailouts of industry represent a moral hazard and may be carefully examined for conflict of interest such as campaign contributions or public speaking fees.

Banks
Investment banks put up an information barrier known as a Chinese wall between teams that advise corporate clients on things such as mergers & acquisitions and teams that manage money or advise brokerage clients. If buy-side teams obtained confidential information about such a client, this would be a clear conflict of interest.

Compensation
Hiring salary and salary adjustments may be impacted by cronyism such as an executive who hires friends at unreasonably high salaries with inflated job titles relative to their experience and responsibilities.

Content & Sponsorship
Media organizations may erect a Chinese wall between journalists and advertising departments to prevent advertisers from influencing the news or other content. It is an widely accepted practice to clearly label any content that has been influenced by advertisers.

Discipline
Cronyism may impact employee discipline. For example, serious complaints about executives and their inside circle at a firm may be casually dismissed, potentially in violation of employment law.

Fee Splitting
The practice of referring clients from one professional to another for a fee. Considered unethical in the medical profession.

Governance vs Management
In many cases, governance is set up to direct and monitor management. As such, when governance bodies are controlled by management this can be a conflict of interest. For example, if the board of directors of a firm is controlled in some way by the firm’s management.

Grassroots vs Astroturfing
Grassroots is a term for an organization set up by people who are not the member of an elite in pursuit of a common goal. Astroturfing is when an industry, firm or elite political group set up a fake grassroots organization to pretend that there is public support for their goals.

Insider Trading
An employee of a firm who uses confidential material information for material gain.

Judiciary & Commercial Interests
A judiciary that is influenced by commercial interests such as a privatized prison that influences a judge to give tougher sentences.

Judiciary & Personal Experience
A judge that knows a defendant and similar conflicts of interest based on the personal experiences of judge and jury.

Media & Politics
A high level politician has dinner with a media executive and asks that a journalist be fired for a critical article.

Medical Marketing
When a doctor is given material incentives to recommend a treatment by the firm selling the treatment.

Procurement
Procurement of goods and services is often governed by regulations and expected due diligence to prevent bribery, small gifts, relationships or any other conflict of interest from influencing the process. In some countries, procurement fraud is a major issue that impacts economic efficiency.

Nepotism
Granting favors to family in a commercial or political setting.

Outside Employment
Holding two jobs can theoretically result in conflicts of interest. For example, you may be tempted to use the secret propriety knowledge of one firm to complete work at the other.

Performance Management
Cronyism in performance management such as promoting friends despite low performance.

Perverse Incentives
A negative unintended consequence of a performance goal, incentive or system. For example, an executive who contractually gets a large bonus if they are fired has an incentive to fail in some circumstances.

Profit Motive & Public Services
Allowing the profit motive to corrupt institutions designed for the public good.

Regulatory Capture
A failure of government whereby commercial interests have undue influence on the agencies designed to provide oversight of an industry. In some cases, this extends to capture of the legislative process itself.

Research & Sponsorship
Research designed to satisfy a sponsor as opposed to being scientifically accurate.

Revolving Door
A system of influencing government whereby a firm’s employees are sent to work for government or government employees are offered lucrative future employment in exchange for influence.

Self Audits
An organization or department that audits its own controls may be likely to miss things.

Self Dealing
A general term for a violation of fiduciary duty in pursuit of self-interest.

Self Regulation
Industry self-regulation may risk conflict of interest as the profit motive may supplant the public interest.

Learn More
Product Experience Jonathan Poland

Product Experience

Product experience refers to the overall value that a product or service provides to customers based on their perceptions as…

Retrenchment Strategy Jonathan Poland

Retrenchment Strategy

Retrenchment is a business strategy that involves reducing the size or scope of a company in order to improve efficiency…

Communication Channels Jonathan Poland

Communication Channels

A communication channel refers to the various means of transmitting information and messages between individuals or organizations. There are many…

Camping Strategy Jonathan Poland

Camping Strategy

Camping strategy is the practice of a using a geographical location as a competitive advantage. It has several common applications:…

Contingency Planning Jonathan Poland

Contingency Planning

Contingency planning is a risk management strategy that involves developing alternative plans or strategies in case the primary plan is…

Risk Management Techniques Jonathan Poland

Risk Management Techniques

Risk management is the process of identifying, assessing, and prioritizing risks in order to minimize their potential impact on an…

Negotiation Jonathan Poland

Negotiation

Negotiation is a dialogue between two or more parties with the goal of reaching an agreement. It is a fundamental…

Deep Learning Jonathan Poland

Deep Learning

Deep learning is a type of machine learning that involves the use of artificial neural networks to learn and make…

Systematic Risk Jonathan Poland

Systematic Risk

Systemic risk is the risk that a problem in one part of the financial system will have broader impacts on…

Content Database

Foot in the Door Jonathan Poland

Foot in the Door

The foot-in-the-door technique is a persuasion strategy that involves asking for a small favor or agreement first, before making a…

Examples of Strategy Jonathan Poland

Examples of Strategy

A strategy is a long-term plan that an organization or individual develops to achieve a specific goal in a competitive…

Good Failure Jonathan Poland

Good Failure

Good failure, also known as productive failure, refers to the idea that failure can be a valuable learning experience and…

Cost Leadership Strategy Jonathan Poland

Cost Leadership Strategy

A cost leadership strategy is a business plan that aims to reduce unit costs for a product or service to…

Product Identity Jonathan Poland

Product Identity

Product identity refers to the overall personality or character of a product. This can include the product’s features, benefits, and…

Internal Benchmarking Jonathan Poland

Internal Benchmarking

Internal benchmarking is the process of comparing the performance of one aspect or function within a company to another aspect…

Value of Offerings Jonathan Poland

Value of Offerings

Value is a concept that refers to the usefulness, worth, and importance that customers assign to products and services. This…

Credit Risk Jonathan Poland

Credit Risk

Credit risk refers to the likelihood that a borrower will default on their debt obligations. When an entity has a…

Media Vehicles Jonathan Poland

Media Vehicles

A media vehicle refers to a specific media outlet or platform that is used to deliver advertising messages to a…