Compliance &Ethics - Society of Corporate Compliance and Ethics

Compliance & Ethics Professional May/June 2013and approves it, even though he should beusing one of three preferred vendors.The conflict of interest in this scenariolies with Harold, the purchasing manager.The company had three approved preferredvendors prior to Brian’s new vendor request.The company most likely was trying to keepthe number of vendors down so they coulddrive their purchasing volume to the preferredchoices and position themselves to negotiatelower prices for thefuture. The companymay also have had anannual volume rebatenegotiated with thepreferred vendorsthat could havereduced future paymentsto the vendors.All of the applicableincentives, discounts,and the preferred terms and conditionswould have been known to Harold; however,he chose to subordinate these benefits to thecompany so that he could serve the specificinterests of his cousin Brian in the Marketingdepartment.The existence of a potential conflict ofinterest in this scenario is not inherentlywrong. The real damage done to the organizationis the way in which the purchasingmanager reacted to or ignored the conflict. IfHarold had been provided documented guidanceon how to deal with pre-existing businessand familial relationships that impact businesstransactions, his selection of a vendor wouldmost likely have produced a different result.Many people, left to their own devices in sucha situation, will seek to make a choice that createsthe least amount of personal conflict.One additional course of action for Haroldcould have been to simply disclose his familialrelationship to his supervisor and allowthat person to decide how to proceed with the“…instead of the disclosureserving as a warning,it can actually placea burden on those it wassupposed to protect.”processing of Brian’s purchase order. On thesurface, it seems reasonable and prudent toinvolve an objective decision-maker to absolveHarold of any potential conflict of interest.However, recent research on the disclosure ofconflicts of interest would indicate otherwise.In a research paper, 1 the authors demonstratethrough various experiments that“…increased pressure results from advicerecipients feeling obliged to help satisfy theiradvisors’ personalinterests when thoseinterests have beendisclosed.” If we wereto apply the results ofthis research to ourscenario with Harold,his disclosure of aconflict to a supervisordoes not relievehim of the conflict butrather, “…instead of the disclosure serving asa warning, it can actually place a burden onthose it was supposed to protect.” The studygoes on to show that such a disclosure wouldmost likely cause the supervisor to haveincreased trust in Harold’s recommendation.So where can Harold go to gain relief fromhis conflict of interest? The prudent coursewould be to disclose the conflict and refrainfrom influencing the processing of his cousinBrian’s purchase order. This would ensure theintegrity of the purchasing process and set thestandard for future interactions that present aconflict of interest.No harm, no foulAnd what of the application of my client’sclaim “no harm, no foul”? I would offer thatthe harm could be defined as several addedcosts to the company for allowing the conflictof interest to remain, such as added processingtime to disclose the conflict and re-assign thetransaction to another purchasing manager,72 www.corporatecompliance.org +1 952 933 4977 or 888 277 4977