Conflicts of Interest

December 31, 2004
Document

2004
Brian Sears, Director, Ethics Awareness, Lockheed Martin Corporation

Consider the following three scenarios:

  • An employee for a computer services company starts a side business installing and servicing personal computers.
  • A supplier representative sends a client two tickets to the Superbowl in appreciation for all the business they received from the client's company.
  • A U.S. government employee inquires about job openings at a company that does business with the government employee's agency.

Do any of these examples sound familiar? Do any constitute a conflict of interest? The easy answer is…of course! The computer services employee could be taking business away from his or her employer. Accepting an expensive gift from a supplier may influence the client. The government official might have an influence on contracts held by his future employer. But let's take a closer look.

A conflict of interest can be defined as an action or relationship that might impair an employee's ability to make objective and fair decisions relating to the employee's job performance. Many organizations add the words "even the appearance of a conflict" to the definition. With this foundation, we can examine the above three examples:

An employee for a computer services company starts a side business installing and servicing personal computers. Questions that need to be asked include, "Are the customers served by the employee the same customers served by the employer?" "Does the employee spend any company time on or use any company resources for his or her side business?" If the answer to either of these questions is "yes," then the employee has a conflict of interest, since (a) the employee is taking business away from his or her employer, and (b) the employer's resources are being used for business activities for which the company does not benefit. If we assume that the employee starting the side business has a different customer base, i.e. customers that would never use the employer's services, such as family and friends of the employee, AND the employee conducts the side business on his or her own time, away from the office, then perhaps the side business does not constitute a conflict of interest. An important element is full disclosure of the situation to the employer so that a conflict of interest determination can be made.

A supplier representative sends a client two tickets to the Superbowl in appreciation for all the business they received from the client's company. In this example the key factor is the client's policy regarding employee receipt of gifts and business courtesies. These policies are frequently driven by the client's type of business or industry. Many industries, such as government contracting, have strict policies limiting the value of gifts employees may accept, and tickets to the Superbowl may be viewed as extravagant and would exceed these limits. Other industries, e.g. financial services, have a more relaxed attitude toward the acceptance of gifts, and going to the Superbowl at a supplier's expense is not viewed as unusual. Employees of the executive branch of the U.S. government have some of the most restrictive gift rules. Before accepting the gift, the client needs to know the organization's gift policy. Another factor might be if the offeror of the gift represents a foreign business or government, where the rules and customs in the foreign country are different than the receiver's rules and customs. In some cultures, gift giving is a normal part of business relationships, and to refuse a gift can be viewed as an insult to the individual offering the gift and can damage future business dealings. Similarly, when an employee is considering offering a gift to a foreign official, the employee needs to be aware of the gift-giving rules that apply in the foreign country. Not knowing the country-specific gift rules could put the employee and the employer at risk of a violation of U.S. and foreign laws.

A U.S. government employee inquires about job openings at a company that does business with the government employee's agency. The key issue in this example is whether or not the U.S. government employee has recused himself or herself from matters involving the company with which the government employee is seeking employment. The Federal government, and many states, have so-called "revolving door" laws that restrict the activities of certain employees when they leave government employment. The intention of these laws is to prevent former government employees from using their previous position to benefit themselves or others. In some cases, the employment restrictions on the former government employee are in place for the life of the employee. In other instances, the employee will have no restrictions. Companies that hire government employees need to be aware of the "revolving door" laws that apply to candidates. When in doubt, consult with the legal department or human resources.

There are many other situations where an employee risks creating an actual or perceived conflict of interest, where a reasonable person might conclude that the employee has a divided loyalty:

  • A manager hires a family member for a key position
  • A family member functionally reports to another family member in the same department
  • An employee selects a supplier in which the employee has an ownership interest
  • An employee takes a second job working for a competitor
  • An employee uses the employer's proprietary information for his or her own business venture

While these examples are not all-inclusive, they demonstrate the wide range of situations employees and companies face. Steering clear of conflicts of interest helps ensure fair treatment to all stakeholders of the organization.

Brian Sears is Director, Ethics Awareness, for Lockheed Martin Corporation.