In the course of doing business, conflicts of interest inevitably arise. The conflict might be between an employer and an employee, the owner of a business and a customer, or an individual’s private and professional interests. Conflicts of interest pose problems for individuals because it divides their loyalties. On the one hand, taking advantage of a particular situation may offer an individual some personal gain or benefit, while on the other hand, doing so may compromise the individual’s duty of loyalty.
Examples of Frequently-Occurring Conflicts of Interest
There are a number of business situations where conflicts of interest commonly arise. Some examples include:
- Situations involving a misuse of confidential information. Individuals are frequently exposed to confidential information in a business setting that can be exploited for personal gain. Misusing confidential information is cause for concern for two reasons. First, the information is not yours to begin with—it belongs to someone else, such as a current or prospective client, partner or vendor. Second, misuse of confidential information will likely be a breach of your fiduciary duty of loyalty. Your clients or shareholders gave you this information in confidence.
- Making business decisions that provide a benefit to oneself. Exploiting a business situation so that you can benefit in some way to the detriment of your partners, clients or shareholders is a conflict of interest. The benefit might not accrue directly to you—for instance, you might award a contract to your brother-in-law’s company, even though selecting other contract bids would be more profitable for your business organization.
- Conflicts arising from having multiple employers. Many people moonlight or engage with multiple employers. However, if you are employed or engaged by two or more parties, it is important that you perform your duties to each party to the best of your ability. It may not always be possible to meet your employment obligations or duty of loyalty to multiple employers at once. In such cases, you’ll have to eliminate the conflict by either leaving one of the employers or by recusing yourself from a particular business situation or decision.
- Gifts can present conflicts. Sometimes gifts are presented in the course of business. Conflicts of interest may arise when the gift was meant to improperly influence the recipient or otherwise has the appearance of a bribe.
What Can You Do About a Conflict of Interest?
Individuals or business organizations concerned about an actual or potential conflict of interest can consult an experienced business attorney about whether a conflict of interest exists and the best means of handling the situation. Sometimes the best way to circumvent a conflict of interest is to disclose the interest to your business organization. By fully disclosing your interest, your business organization can determine whether a conflict actually exists, and if it does, whether it will consent to your taking advantage of the opportunity. Often a middle ground is struck, such as the company will agree to your being a silent partner to a shop next door to the company, as long as the shop’s wares do not compete with the company’s goods.
In situations in which the conflict is simply too great for you to continue, you may have to recuse yourself from conflicted activities or from a conflicted position entirely. In some circumstances, simply sitting out of the business decision in which you have a conflict of interest is enough. For example, maybe there is another team member who can take your place in a project for the specific client for which you have a conflict. But sometimes the conflict is insurmountable, so that you will have to make a hard choice as to whether to continue working for your employer, or to resign and pursue the business opportunity (assuming a competent attorney has advised you the opportunity does not violate any non-compete provisions of your separation agreement).