Conflict of Interest

Unmanaged conflicts of interest are at the root of many corporate scandals — from insider trading to corrupt procurement to board-level failures. Regulators, investors, and audit committees increasingly demand formal COI policies and disclosure processes. A single undisclosed conflict can result in regulatory penalties, shareholder lawsuits, and reputational destruction.

Financial Conflicts

• Personal financial interest in a company decision (owning stock in a vendor you're selecting)
• Outside employment that competes with or affects your employer
• Accepting gifts or hospitality from business partners that could influence decisions

Relational Conflicts

• Nepotism — hiring, promoting, or supervising family members
• Romantic relationships in supervisor-subordinate chains
• Personal friendships with vendors or service providers you evaluate

Informational Conflicts

• Insider information — using non-public information for personal gain
• Dual roles — sitting on a competitor's board, advising competing parties
• Confidential information — sharing proprietary data with outside interests

Organizational Conflicts

• Board member conflicts — directors with interests in transactions the board approves
• Auditor independence — audit firms providing consulting services to audit clients
• Research conflicts — academic or scientific research funded by interested parties

1. Disclosure

• Require annual COI disclosure forms from all employees
• Mandate real-time disclosure when new conflicts arise
• Board members must disclose before every relevant vote

2. Assessment

• Evaluate disclosed conflicts for severity and risk
• Determine whether the conflict can be managed or must be eliminated
• Document the assessment and decision

3. Mitigation

• Recusal — remove the conflicted individual from the decision
• Separation — reassign reporting lines or responsibilities
• Monitoring — additional oversight of the conflicted person's activities
• Divestiture — require selling the financial interest

4. Documentation

• Record all disclosures, assessments, and mitigation actions
• Retain records for audit and regulatory examination
• Report trends to the board or compliance committee

• SOX — requires COI policies for public companies
• DOJ — evaluates COI management in compliance program assessments
• SEC — directors and officers must disclose material conflicts
• EU corporate governance codes — board-level COI disclosure requirements
• Banking regulators — strict COI rules for financial institutions
• FCPA — conflicts often overlap with bribery risk (agent relationships)

• IIA Standards — auditor independence and objectivity
• OECD Principles of Corporate Governance — board COI management
• SEC Regulation S-K Item 404 — related party transaction disclosure