Conflict of Interest in Business
Conflicts of interest are common ethical dilemma in the business and financial sector. Employees faced with decision often fail to recognize that it causes ethical issues to arise. Other individuals may recognize a potential conflict of interest, but then simply choose to ignore it. When ethical issues arise, understanding the morally right aspect to perform is insufficient, if one lacks the moral fortitude to act on it. Challenging instances of conflicts of interest arise in business when its core principles clash. Lawmakers facing a barrage of requests from lobbyists and donors find difficulties when designing policies without conflicts of interest (Boone & Kurtz, 2009, pg. 241). In the business world, the ethical dilemmas posed by potential conflicts of interest are intricate. This discussion focuses on the problem of conflict of interest within an organization, provides examples of corporations faced with this problem and ultimately offers some recommendations to help solve incidences of conflicts of interest.
A significant conflict of interest in the business world is the ethical dilemma. It occurs when employees demonstrate a financial interest in their employer’s competitors (Boone & Kurtz, 2009, pg. 253). This shows the impacts of external influences of conflicts of interest. Such influences play a major role in compromising an employee’s judgment. Based on this, an ethical dilemma appears when the best interest of the employee and the best interest of his employer contradict. In fact, ethical dilemmas emerge in numerous business subsectors, such as human resources, employee safety, customer confidence, and use of corporate resources. In the event of ethical conflicts in the workplace, it is imperative for an organization to give meaning to its vision and mission. This then results into the organization opting to train its workforce so that it can deal with the ethical dilemma in a unified manner. This is crucial since it helps employees to draw ethical decisions ideal for improving overall perspective of the corporation.
Another conflict of interest arises in the event of nepotism. In a business organization, this occurs when a junior employee reports to a supervisor who is a close friend or relative and appears to affect job functions, salaries, incentives, and promotions. There may also be incidents of intimate attractions at the workplace. In most cases, senior managers tend to get attracted to their junior female counterparts. This causes a tremendous conflict of interest in the event the junior employee does not yield to her senior’s demands (Boone & Kurtz, 2009, pg. 241. In most cases, she ends up facing discrimination when it concerns work allocation or worse enough the senior manager sacks her. It normally breaks down the entire system of communication in the corporation as the two try to avoid each other. The ultimate negative impact is on the profitability of the business organization. In case of nepotism, evaluators of this conflict propose avoidance of assigning important positions to family members or relative to the senior managers of the company. An informative training program is as well vital in ensuring that senior managers uphold the integrity at the workplace.
Research indicates that ethical issues arising from conflict of interest affect both employees in a small firm and those in large multinational corporations. Central to cause of conflict of interest is compromising objectivities. This varies from bribery and undue influence to obtaining privileged information. Because of these various practices, conflicts of interest are a challenging ethical dilemma to address (Ferrell & Ferrell, 2011, p. 213). An individual’s level of cognitive, moral development can influence his ethical behavior immensely. It is also crucial to note that identifying cases of conflicts of interest may be a difficult task. As a result, employees should determine for themselves whether their job-based decisions relate to significant business principles (Shaw, 2010, pg. 204).
At a higher level of conflicts of interest, there are two principal categories: legitimate and illegitimate. Illegitimacy arises in the event a governmental official dealing with a private contractor demonstrates an interest in obtaining a job with that contractor. This is unethical since every contractor who places a bid is entitles to equal rights of facing the vetting committee. Contraction will depend on the level of performance of the contractor according to standards. This implies that the best contractor should get the job instead of acquiring the same based on some form of bias. Legitimacy occurs in the event an ex-banker, who used to work in a financial institution, makes decisions that favor bankers in his previous company out of a genuine conviction that such decisions actually serve the public interest (Shaw, 2010, pg. 214). Corporate law appears adequately designed to deal with the issue of conflicts in the area of business. In other words, business conflicts are quite tractable vis-à-vis other types of conflicts. Stringent penalties application in the case of managers engaging in corruption and bribery reduces the unethical practice. However, this may kill the morale of competent workers that exercise such practices as nepotism and discrimination.
In the dynamic field of business, the potential for the occurrence of conflicts of interest is quite high. Numerous scandals have occurred involving representatives of leading firms embroiled in conflicts of interest. One example of such a fiasco would be the Enron scandal, identified as one of the largest corporate collapse ever to occur in the United States. The major cause of this collapse was a conflict of interest faced by the accounting firm Arthur Andersen. The company hid vital information from the public and this immense conflict of interest led to the bankruptcy of the Enron Corporation and the dissolution of Arthur Andersen. This ethical dilemma highlights the importance of honesty as a corporate principle. The management of Arthur Andersen perpetuated a culture of dishonesty and obliqueness. The alleged accounting errors imply additional complications. From an individual perspective, the moral and ethical responsibility for the collapse of Enron is because of the corrupt acts of Arthur Andersen. It violated the industry’s specifications in presenting its leading role as a certified public accountant. The company irreparably damaged its reputation due to a complete lack of corporate ethics.
Large firms like Boeing are not an exception when it comes to dilemmas of conflicts of interest. The company is one of the largest aircraft manufacturers in the world. Although it is currently profitable, its employees were vulnerable to a case of conflict of interest (Ferrell & Ferrell, 2011, p. 216). In 2003, Michael Sears was the CEO of Boeing and Darleen Druyun served in the capacity of a corporate vice-president (Shaw, 2010, pg. 319). A conflict of interest arose when Druyun asked Sears for employment opportunities in Boeing for two members of Druyun’s family. This move violated one of the core principles of the business: to act in the best interests of the firm rather than the best interests of an individual. Since Boeing highly valued their reputation within the field, they cracked down on this case of conflict of interest. Both Sears and Druyun faced a sentence for several months in prison because of the ethical and moral impropriety of their actions.
In addition to the Enron and Boeing cases, another representation of a conflict of interest in the business field is that of the WorldCom case (Shaw, 2010, pg. 361). WorldCom employees did not have a clear understanding of the company’s rules and policies since they had no relevant compliance strategy within the corporation, In this case, a major conflict of interest led to the publishing of inaccurate financial statements (Ferrell & Ferrell, 2011, p. 217). Additionally, external auditors failed to register or report any issues concerning the financial statements. An examination of the company’s trend in unethical issues, the problems facing the company resulted from its history of improper management decisions. The lack of relevant ethics program also contributed to the failure of the company. Both employees and the management staff failed to understand the specificity, goals, and mission of the organization. The persistent conflict of interest combined with speculative financing and investment procedures had a negative impact on the reputation of the company(Shacklock, Manning & Hort, 2011, p. 37).The conflict of interest in this case underlies the necessity of implementing a comprehensive reform of the supervisory system for universal banks. This should be a top priority for bureaucrats assigned the task of maintaining financial regulations.
Many international companies provide a relevant explanation of the occurrence of conflicts of interest. These companies ensure that ethical issues, which concern business activities, rule out incidences of conflicts of interest. For instance, IBM demonstrates a quite explicit definition of the role of certain factors that contribute to the development of conflicts of interest. The company’s commitment to present a clear and direct statement of conflict of interest is indicative of its serious approach adopted to avoid similar unfavorable cases. However, most organizations, especially the smaller ones, lack such clarity and determination to ensure transparency and openness to define and deal with the issue of conflicts of interest in the business field. Therefore, professionals in the contemporary business environment advise employees to be more responsible, reliable, and open in their professional conduct with others (Shaw, 2010, pg. 318). They should be aware of the persistent dangers that may lead to conflicts of interest so that they can avoid serious consequences with employers or the law.
Although Best Buy receives criticism for their customer service and high prices, this company can at least boast of having a relevant policy on conflicts of interest. The purpose of creating this specific policy is to provide an appropriate opportunity for employees to understand that they should not act in their personal interest but rather in the best interest of the company (Shaw, 2010, pg. 388). The existence of trust is fundamental in the process of avoiding conflicts of interest. Despite the complexity of conflicts of interest that may appear in the marketplace, Best Buy is committed to the practice of employees discussing similar situations with their managers or supervisors. They ensure that they ask all applicable questions and consider all implications throughout the process of complying with the company’s ethical guidelines and principles of conduct (Shacklock, Manning & Hort, 2011, p. 37).
Disclosure is an essential aspect of the mentioned policy in the sense that employees are encouraged to disclose potential conflicts of interest to the company’s vice president so that they can find a proper solution to the problem (Boone & Kurtz, 2009, pg. 99). The policy also considers the importance of discouraging close and personal relationships within the company. Prohibition of social relationships takes place when the specific relationship leads to certain complications by creating a weakness within the organization’s structure. Personal investments are problematic and always associate with emerging conflicts of interest. From this perspective, a quite low level of investment or right to acquire ownership under particular circumstances may represent a conflict of interest. As an inseparable part of this policy, Best Buy considers the ethical guideline of not participating in related party transactions. An important requirement for the effectiveness of the described policy on conflicts of interest, as well as other companies’ policies, is the aspect of accountability. Employees should be aware that a failure to comply with the specific rules of the policy might lead to termination of their employment.
A number of recommendations are vital in the next discussion to reduce the effects of conflicts of interest within organizations. The first one is the formation of an anticorruption commission, which may help managers within companies to handle the issue of conflicts of interest .This can serve as a guarantee that the organizations demonstrate their responsibility of providing clear descriptions of the factors and causes of conflicts of interest. As mentioned earlier, this problem presents ethical dilemmas that need to be resolved in a timely manner. This avoids further complicated situations in business. In fact, ethics face serious compromise because of the frequently occurring conflicts of interest in the competitive business sector. Dividing employees’ loyalty between their own company and a second company is quite problematic and unethical (Folsom & Boulware, 2009, pg. 42). Despite the difficulty to determine some conflicts of interest, professionals in the field should take serious measures to prevent similar incidents because they violate a company’s image and reputation.
Employees should avoid situations that are vulnerable to conflicts of interest. For instance, accepting a gift that fails to meet the specific standards of gifts and entertainment policies within organizations is unethical. Individuals working in a particular company should not participate in any decision pertaining to an organization that employs their family members (Folsom & Boulware, 2009, pg. 61). This would help to avoid bias and nepotism in the event of deciding between a family member and another staff member within the organization. Other pertinent considerations include the use of nonpublic information for one’s personal advantage, receiving personal discounts from suppliers or service providers that are unavailable to all employees within the particular company, and an investment in an external business opportunity perceived by the employees’ company as an area of interest. This would help in reducing employee dissatisfaction. Treatment of works equally boasts of their morale. This reduces the gap between employee perception and satisfaction.
Another essential step to reduce the occurrence of conflicts of interest relates to organizational efforts of communicating the organization’s principles and procedures related to proper, ethical conduct effectively. The implementation of monitoring and auditing systems is an efficient strategy to minimize conflicts of interest (Folsom & Boulware, 2009, pg. 69). Employees will understand and avoid clashes with the corporation’s principles. Every worker operating within the desired values and maintain the company’s profitability promotes acceptable ethical standards.
The paper provided a thorough exploration of the importance of the ethical dilemma of conflict of interest in business. Central to this discussion was a systematic approach to the problem, its implications, examples of multinational firms affected as well as those keen to avoid incidences of conflict of interest, and ultimately recommendation. The paper offered numerous details related to companies involved in conflicts of interest such as information pertaining to organizations like Enron, WorldCom, Boeing, among others. The radical idea was to describe the complexity of the issue, as well as to enhance employees’ awareness of how to avoid certain situations that may lead to conflicts of interest in the workplace. Providing adequate training opportunities for both employees and managers within companies is an efficient step to recognize and deal with conflicts of interest in the business field. The paper can enrich individuals’ understanding about the complex problem of conflicts of interest in order to avoid such cases to occur in the future.
References
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Ferrell, O&Ferrell, L .(2011).The Responsibility and Accountability of CEOs: The Last Interview with Ken Lay. Full Text Available By:. Journal of Business Ethics. 100 (2), p209-219. 11p. DOI: 10.1007/s10551-010-0675-y
Folsom, W. D. & Boulware, R. (2009). Encyclopedia of American Business. California: InfoBase Publishing.
Shacklock, A., Manning, M., &; Hort, L.(2011). Ethical Climate Type, Self-Efficacy, and Capacity to Deliver Ethical Outcomes in Public Sector Human Resource Management . Journal of New Business Ideas & Trends. 9 (2), p34-49. 16p.
. Shaw, W. H. (2010). Business Ethics: A Textbook with Cases. New York: Cengage Learning
