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Imagine a company buying goods from a supplier owned by one of its shareholders. A financial adviser earning a higher commission for recommending one product over another. Or a purchasing manager awarding work to an old friend.
Each situation brings different interests into play. The company needs to make sound commercial decisions. The adviser has responsibilities towards their client, alongside an interest in earning commission. The purchasing manager has a responsibility to their employer and a personal relationship with a supplier.
Competing interests are the source of a conflict of interest in business. The concern is that one interest could improperly influence a decision someone is responsible for making on behalf of another.
A conflict can exist before anyone has made a poor decision. Recognising that possibility is an important part of understanding conflicts of interest.
Relationships are fundamental to all businesses. Companies rely on trusted suppliers, professional networks and personal referrals. Some deliberately trade with businesses that share owners or directors.
Culture also shapes how business gets done. Family obligations, professional loyalties and expectations of reciprocity influence whom we trust, help and feel indebted to.
These relationships can create commercial value, but they can also create competing interests.
Conflicts of interest in business have recognisable patterns, but their significance depends on the business in which they arise.
Understanding how an organisation operates helps identify where competing interests are likely to arise and which decisions they could affect.
South African businesses have considerable freedom to choose how they operate and whom they work with, but that freedom still exists within a legal framework.
The Companies Act sets out directors’ duties, including acting in the company’s best interests, and procedures for dealing with certain personal financial interests. Specific industries have additional obligations. Under the FAIS General Code of Conduct, for example, financial services providers must manage conflicts that could affect their duties to clients.
King V provides broader guidance on good governance, independence and conflicts of interest. It is intended for a wide range of organisations and is generally voluntary for unlisted private companies. JSE-listed companies have additional obligations under the Listings Requirements.
A business can identify its own conflict risks and set additional disclosure requirements, but it cannot set aside the legal duties that apply to it.
Within those boundaries, organisations must decide how their relationships, culture and commercial arrangements should be reflected in their policies.
Leadership is responsible for setting clear expectations and explaining how they apply to the business.
Consider a company that deliberately buys from a supplier owned by the founder’s son.
Employees responsible for purchasing could reasonably expect to understand why this arrangement exists, who has authorised it and who may appoint or change suppliers.
Employees don’t necessarily need access to confidential commercial information, but they can reasonably expect to understand the rules governing their own decisions, including why certain relationships are permitted and what authority they have.
This also gives leadership an opportunity to explain why different roles carry different responsibilities.
Different responsibilities may justify different rules. They should not provide an excuse for double standards.
Employees don’t need to understand every detail of company law or the organisation’s commercial structure.
They need to recognise the interests that could interfere with their responsibilities and know what to do when that happens.
The practical expectation is straightforward: if another interest or loyalty could interfere with a decision you’re responsible for making, raise it through the appropriate channel before proceeding.
Employees should also know where to seek advice when they’re uncertain.
Disclosure is not an admission of wrongdoing. It is there to give the organisation the opportunity to assess the situation and determine what should happen next.
Every business has its own relationships, incentives and ways of working. The law establishes certain duties, while the organisation must decide what additional rules its circumstances require. Those decisions give employee awareness its substance.
Training can explain common types of conflicts, but the organisation’s own context helps employees recognise the situations they’re actually likely to encounter. A common foundation may be appropriate for everyone, with additional guidance for roles carrying different responsibilities.
Effective conflict of interest awareness begins with understanding how the business works, which interests its people are responsible for protecting, and what the law and the organisation expect them to do.
Only then can those expectations become meaningful to the people making decisions every day.
Sarah Lovemore Roux is CEO of Compliance Online. She writes about how organisations can make complicated legal and compliance questions understandable, practical and relevant to the way people work.
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