The importance of a Conflict of Interest Policy and why you need one

Conflicts of interest are more common than you think and can create several unnecessary problems for your business. Conflicts of interest can be complex, and there are a variety of reasons one can occur.

This resource explains what a conflict of interest is, what can cause it and how to navigate it.  Most importantly, we’ll discuss how to create a conflict of interest policy so that you can protect your business and its interests.

What is a conflict of interest?

A conflict of interest is a situation in which a person or organisation is involved in multiple interests, financial or otherwise, and serving one interest could involve working against another. Conflicts of interest tend to affect the responsibility owed to make the right business decisions at the expense of another party.

A conflict of interest could arise from a new business deal, part-time employment, pursuing a new market or product offering, amongst several other possibilities. In other words, any new employment, a business transaction, or a business contract can lead to a conflict of interest, and such, it is essential you do your due diligence.

Interest is a commitment or a goal associated with a particular role or practice. On a personal level, when individuals occupy more than one role, a conflict of interest may arise. On a business level, conflicts may arise when businesses serve multiple clients that may be directly or indirectly competing with one another.

A conflict in its essence does not necessarily indicate unethical practice or illegal conduct; however, if not dealt with appropriately, it can spiral into complex issues for your business that may require legal intervention.

Levels of Conflict

Here is an example to help you understand the different levels of conflict:

Example:

Your business provides mentoring and coaching services to athletes. You work with various athletes across different sports to help them improve their performance and achieve their team goals.

Potential Conflict

A Potential conflict arises where there is no current and tangible conflict of interest, but someone anticipates it to happen in the near future.

Potential Conflict Scenario:

One of your clients plays for team A. Your business is contacted by team B to coach one of their athletes. Team A and Team B play in the same league and compete against each other. By working with both athletes/teams, you anticipate a potential conflict of interest because your work involves sharing sensitive information to your clients about how to deal with their competitors.

Actual Conflict

Actual conflict arises when the conflict of interest has materialised and is affecting your ability to serve both interests equally.

Actual Conflict Scenario:

Your assistant wasn’t aware of the potential conflict and has signed up with the athlete from team B. Now you are faced with the dilemma of having to coach and serve both clients. Eventually, you come to the conclusion that you to drop one of them.

Perceived Conflict

Perceived conflicts occur when there is no actual existing conflict or a potential conflict, but someone is under the impression that there is.

Perceived Conflict Scenario:

One of your employees is a friend of an athlete who competes with another athlete who is considering signing up with you. The prospective client is aware of that and is worried that your employee’s relationship with the other athlete might cause a conflict of interest.

Why is it important to have a conflict of interest policy?

Successful business relationships require mutual trust. If you’re unable to quickly identify and address potential conflicts, that trust can be lost, or at the very least, questioned.

One of the best ways to deal with conflicts is to create a Conflict of Interest Policy that clearly outlines how your business resolves these issues.

Benefit #1 – Increases Trust

A major benefit of having a Conflict of Interest Policy is that it gives your customers certainty that their interests will not be compromised if they do business with you. It’s essentially a commitment by your business towards your clients and helps you build trust and your reputation.

Benefit #2 – Removes Subjectivity and Streamlines Decision Making

Another benefit of creating a Conflict of Interest Policy is that it simplifies the resolution process in the event a conflict arises. At times, we can be subjective and influenced by external circumstances. Having a policy in place removes subjectivity and allows you to make the right decision in an objective manner.

Benefit #3 – Minimises Legal Risks

And finally, a Conflict of Interest Policy will ensure that your employees and key decision-makers in your business have a framework to adhere to when they are unsure how to navigate a conflict. This will help minimise your legal risks and protect your business.

How to create a conflict of interest policy?

Every business is different, and so, a conflict of interest policy is generally quite personalised and tailored to suit your needs. To create an effective conflict of interest policy, we recommend you follow these principles.

Define the objectives and goals

When creating such a policy, it’s important to start by defining what you aim to achieve. These could be:

  • To give employees and decision-makers guidelines on how to navigate conflicts
  • To guide HR teams on hiring and employment contracts
  • To protect existing clients and to ensure their interests are not compromised
  • To portray to prospective clients that your business is trustworthy

Make it simple and clear

It is essential that you clearly define and detail all areas of potential conflict so as to avoid any confusion. When possible, avoid complex jargon and terminology within the policy. This will ensure your policy is easily understood and followed across the organisation.

In addition, include examples and scenarios that elaborate on the rules and procedures outlined in the policy.

Outline processes and procedures

Your policy should outline the processes and procedures clearly so that when a potential (or otherwise), your employees know how to resolve it. 

Further, you should clearly outline the potential consequences and courses of action that your business will need to take should a conflict arise. For example, what will happen if one of your employees started a side business or a part-time job that resulted in a conflict with your business?

Takeaway

Conflicts can happen at any time and anywhere, often when you least expect them. That’s why you should always be prepared for conflicts in order to safeguard your business now and in the future. As has been discussed above, one of the best ways to mitigate conflicts is by creating and adhering to a conflict of interest policy.

If you require help creating a conflict of interest policy, our expert business lawyers are one call away. Get in touch or call us at 02 8644 6000, and we’ll be happy to discuss all your legal requirements.

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Mark Lazarus

Mark Lazarus, the visionary behind the business and the fresh blood of the Lazarus Legal team, Mark (or Laz as he is often known) owes much of his success to his past experiences. And he’s made it his personal goal to bring that wisdom and formula to the firm.

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The importance of a Conflict of Interest Policy and why you need one

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Barry Lazarus

CEO & Notary Public

barry@lazaruslegal.com.au 

We’d be lying if we told you that this bloke isn’t the big honcho of our team, but his name is a dead give-away. The founder of Lazarus Legal, Barry is an old school, tough as nails lawyer. They don’t forge litigators like this anymore.

With decades of experience in both Australia and South Africa, his wisdom is as renowned as his name. Back in the days when Schwarzenegger and Van Damme were kicking ass on VHS, Barry was kicking ass in the courtroom. And after all these years, he still has a reputation for refusing to back down.Barry is definitely the badass you’d want in a fight – in court or otherwise. But really, he’s a big softie. Just don’t let him know you know that (although he probably won’t read this anyway – navigating the Internet is not his strong point).

Aside from putting other lawyers in their place, taking long walks on the beach and spending time with his family, Barry enjoys seeing others succeed. Not only is Barry a staunch and unmoving litigator, he has sharp business and commercial acumen having started up ventures from scratch and growing them into full-blown franchises – from real estate to creating ice cream, to making pasta. With his experience on both sides of the commercial and legal equation, you want this guy to be on your side, whether you’re the next Zuckerberg realising your genius, or the next Zuckerberg taking on your opponents in court.

When Barry is not busy lawyering about, he is a part-time lawn bowler and a wannabe comedian, but never took both as a day job, because let’s face it, he’s a lot better at his day job.

If someone ever threatens you to lawyer up…relax, call Barry and he’ll handle the rest. 

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Mark Lazarus Director

Mark Lazarus

Director

mark@lazaruslegal.com.au 

The visionary behind the business and the fresh blood of the Lazarus Legal team, Mark (or Laz as he is often known) owes much of his success to his past stories and experiences. And he’s made it his personal goal to bring that wisdom and formula to the firm.

He’s a bit of jet setter, splitting his time between Australia and the UK, maximising every hour of his professional life. He thrives on this adrenalin. It allowed him to work in private practice in Sydney, act for a host of famous celebrities in London, do a two year stint as a NSW barrister (and not the pretentious coffee type in the Melbourne laneways) and more recently did a gig as the Legal Director covering Europe, the Middle East and Africa for one of the world’s coolest fast-moving consumer good brands!  

As an Aussie and UK lawyer and former barrister, Mark not only has the gift of the gab but he’ll walk the walk to prove it too. He likes to think he’s a bit like Harvey Specter or Michael Corleone, the main difference is you can actually retain him as your lawyer and consigliere. He’ll tell you how it really is and will take on any challenge head on. Although litigation and court advocacy comes naturally to him, commercial and IP is what gets his blood pumping! 

When Mark is not out there doing his thing, you will probably catch him chilling at home with his family, on the sidelines of the soccer (football) pitch cheering on his two boys, crawling through mud obstacles, or training hard at the gym. Passion and commitment is what drives Mark to succeed, along with his burning desire to disrupt the legal profession by finding new ways to change the game.

He has sights on the future. So if you’re breaking new ground, ahead of the times, and on the verge of something big, but you need someone who’s got your back and who can give you straight up advice, this is the guy you will want on speed dial.

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