A company can only function at the highest level when its employees support its mission 100 percent and align their interests with the company’s. While it’s healthy and natural for employees to have outside interests, and many outside interests can even increase employee loyalty and boost their productivity, it’s potentially damaging for employees to have interests that might conflict with the company’s. But if your employees have conflicts of interest, would you even know about them?
Suppose you have a high-ranking employee who unbeknownst to you is a part-owner of a materials supplier. That company seeks to do business your company and you enter negotiations with them. The high-ranking employee is involved in those talks, and an agreement is made. Can you be certain you got the best deal? Maybe you did, but wouldn’t it have been better if you had known of the potential conflict of interest?
If this employee had disclosed his relationship with the supplier, you could still have negotiated a deal, but maybe you would have required him to recuse himself. The problem isn’t so much his ownership interest as his lack of disclosure.
So how can your company avoid situations like this with your vendors, suppliers and contractors? In some cases, employees will remain silent on conflicts, in other cases they may go through great pains to hide their connections. To protect your company interests, you need to adopt a clear conflict of interest policy and train your personal on potential conflicts.
A sound conflict of interest policy includes these elements:
- Definitions — You must define what constitutes a conflict of interest, such as ties to a competing organization, or a trade partner, which can include monetary interests and personal/familial connections.
- Disclosure requirements — Employees must understand how and when to inform your company of their potential conflicts.
- Reporting processes — There must be a mechanism for employees to report their own conflicts and potential conflicts they learn of involving other workers.
- Review process — The company must have a process for deciding whether ties present a conflict. But more importantly, the company must have a process for deciding what to do about an undisclosed conflict.
- Sanctions — Employees must understand the seriousness of undisclosed conflicts and that discipline can include termination.
- Confidentiality — The company must have clear rules against sharing proprietary information with outsiders, especially competitors.
At the bedrock of the employer-employee relationship is the employee’s fiduciary duty to act in their employer’s interests. If the company cannot trust a worker to act honestly and in good faith to advance the organization’s mission, the company is at risk of being defrauded and suffering losses they could easily have prevented.
At Breon & Associates, our fraud detection experts believe your company’s success depends on your ability to hold all stakeholders to the highest ethical standards. Let our team of professionals instruct you on the best preventative measures.
Contact Breon & Associates in Harrisburg
Consult Breon & Associates for knowledgeable, individualized assistance in preparation and filing. With offices in Harrisburg and North Central PA, Breon & Associates provides business, accounting and tax services throughout Pennsylvania. Call us at 1-888-516-8476 or 717-273-8626, or contact one of our offices online to schedule an appointment.
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