What is a conflict of interest policy in your business contract?

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Conflict of interest – fact or friction?

With many people these days working second jobs, setting up online businesses, or just pushing harder to get ahead, circumstances can easily arise where allegiances become clouded. At times complications arise even though the original intent may have been an innocent attempt at goodwill.

Conflict of interest can be real, perceived, or potential. Some examples may make it easier to understand these various types.

Real, or actual:

  • Your business is going gangbusters and you have advertised for new employees, however, you employ your brother without going through any formal selection process.
  • One of your employees, a capable and enthusiastic individual, starts their own side business offering an identical product or service.
  • A mid-level manager in the recruiting department fails to disclose that they are dating one of the applicants.
  • A member of the board of directors offers advice and receives fees or remuneration from another business that is in direct competition.

Perceived:

  • You are a manager in a large company, and a friend of your spouse gains employment there. People assume the friend only attained the position through inside connections, but in reality, neither you nor your spouse had any knowledge of it.

Potential:

  • You run a very successful graphic design business. Your friend and neighbour, a designer, lets you know that they are applying for a contract that your company has advertised. There is no conflict of interest yet, but the potential is there.

As can be seen from these examples, the potential for conflict of interest is possible right through the various layers of employees, from business owners down.

As with other aspects of business management – equal opportunity, workplace safety etc – it is important that business contracts provide clearly defined expectations so that all concerned are fully appraised of what is acceptable. Further, there should be clear and established guidelines on how breaches, or anticipated breaches, will be handled.

Put it in writing

Business owners should have a clearly written Conflict of Interest Policy in their business contracts that specifies:

  • The purpose, scope, and objective of the policy
  • Concise definitions of terms such as: conflict of interest; employee; agent; reporting; discipline
  • A clear path of desired action should any level of management or employee become aware of unacceptable activity
  • A formally identified process for dealing with untoward behaviour, and a clear indication of possible disciplinary outcomes following an investigation

Don’t leave it there …

As with the many areas of business management, placing a section in the business contract is only the first step. Prevention is better than cure, and the policy will have much greater efficacy if employees at all levels are not simply made aware of the existence of the policy, but receive full explanation and training. This provides an opportunity for complete understanding so that all concerned have no doubt as to what is acceptable, what is not, and what the outcome may be for deliberate breaches.

Key Takeaway

Conflict of interest can happen at all levels of the business structure, sometimes intentionally, and often quite unwittingly. Forewarned is forearmed, and a properly worded and effectively delivered conflict of interest policy can alleviate potential issues before they become major problems.

Commercial Law – keep ahead of the curve. It will be easier with sound legal advice from the experts. Contact Owen Hodge Lawyers today on 1800 770 780 or via email at ohl@owenhodge.com.au. We are here to help.

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