Why Employers Need Conflicts of Interest Policies
“Conflicts of Interest” can be a term loosely applied to an employee’s mixed motives or divided loyalties, but in the employment law context, a conflict is a personal or financial interest that is opposed to the employer’s business interests. Employers need to protect against personal and financial conflicts since they can often affect the employee’s judgment or influence the execution of his or her duties on behalf of the employers. Some employers (banking, insurance, private foundations, for example) are particularly susceptible to damaging employee conflicts and, therefore, subject to significant conflict regulations. But all employers have an interest in avoiding employer conflicts of interest through a solid conflicts policy.
A good employer conflicts policy offers clear definitions of a conflict and processes for disclosure so that conflicts do not harm the employer or imperil a good employment relationship.
The policy should first define what would be a personal or financial conflict in the context of the employers’ actual markets or mission. The policy should address conflicts as related to inside and outside activities. It should acknowledge and define the problem of apparent conflicts. Common aspects of a good corporate conflicts policy address vendor relationships, gifts, second jobs, use of corporate information for personal gain, and inappropriate personal relationships among employees, or with vendors and customers. Examples of conflicts tailored to the employer’s actual situation help build in specificity.
Once an employer-specific and workable definition of a conflict of interest is established, the policy needs to address how the employee is to disclose an actual or potential conflict as well as the method the employer will use to determine how to address a described conflict and provide instruction to the employee. The policy needs to make clear the disciplinary consequences of failing to discern a personal or financial conflict or to make the appropriate disclosures and follow corporate instructions. There needs to be a process for third persons to report potential conflicts of other employees in good faith, which should include whistleblower protections.
Takeaway: The employer and its shareholders as well as the employees, company auditor, legal counsel, vendors, and customers all have a stake in an updated, company-specific, and effective conflicts of interest policy with clear definitions, disclosure processes, and consequences. Legal counsel can be of great assistance in drafting such a policy and interpreting and applying the policy in specific conflict situations.